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Wednesday, October 8, 2008

Oil rebounds to US$90 in Asia after falling to 8-month low


SINGAPORE: Oil prices rebounded to above US$90 Tuesday in Asia after plunging to an 8-month low Monday on concerns a significant slowdown in global economic growth will undermine demand for crude.

"Prices have moved so far, so fast,'' said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

"I certainly wouldn't say the bounce today is indicative that we've reached a bottom in oil prices.''

Light, sweet crude for November delivery was up US$2.38 to US$90.19 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.

The contract fell overnight US$6.07 to settle at US$87.81, the lowest level since Feb. 6.

Prices have fallen about 40 percent since reaching a record at US$147.27 on July 11. Investor expectations about oil demand have turned completely around in the last three months as financial turmoil has sparked concern a recession could envelope the U.S. and Europe.

"Given the stresses and strains in the international financial system, the market is fearful of a severe international slowdown, especially in the developed countries,'' Moore said.

World stock markets plunged Monday amid growing investor anxiety that the U.S. debt crisis is enveloping Europe.

Germany announced a bailout package Sunday totaling $69 billion for Hypo Real Estate, the country's second-biggest commercial property lender. Ireland, Iceland, Denmark and Greece moved quickly to guarantee bank deposits to ease consumer anxiety.

Investors are looking for signs that the Organization of Petroleum Exporting Countries may cut production if prices fall further.

Iranian Oil Minister Gholam Hossien Nozari on Saturday called on fellow OPEC members not to pump too much oil in a bid to keep prices above US$100.

However, OPEC may be reluctant to slash output since higher gasoline and heating costs would be a further drag on economic growth, Moore said.

"I think it's very difficult for OPEC,'' Moore said.

"With the international economy looking weak, decisions to support oil prices have to be balanced against not making the situation worse.''

A stronger dollar has also been weighing on oil prices. Investors tend to buy commodities like oil to defend against dollar weakness and a hedge against inflation, but sell crude as the U.S. currency strengthens.

The 15-nation euro was steady at US$1.3501 in trading Tuesday while the dollar gained to 102.47 yen from 101.59 on Monday.

In other Nymex trading, heating oil futures fell 2.1 cents to US$2.49 a gallon, while gasoline prices dropped 2.3 cents to US$2.08 a gallon.

Natural gas for November delivery fell 10.6 cents to US$6.94 per 1,000 cubic feet.

In London, November Brent crude rose US$1.79 to US$85.47 a barrel on the ICE Futures exchange.

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