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Oil Rebounds after Hitting 4-year Lows
LONDON — Oil prices rebounded slightly on Thursday, after earlier striking the lowest points for more than four years as traders questioned whether Opec’s record output cut would be fully enforced.
Light sweet crude for delivery in January gained 79 cents to $40.85 a barrel on the New York Mercantile Exchange (NYMEX) after overnight striking a low point of 39.19 — which was last seen on July 13, 2004.
On London’s InterContinental Exchange (ICE), Brent North Sea crude for February jumped $1.01 to $46.54 per barrel after sinking as low as 45.08.
The Organisation of the Petroleum Exporting Countries (Opec), which produces about 40 per cent of the world’s crude, approved a record output cut on Wednesday of 2.2 million barrels a day or about 7.0 per cent of its output quota.
“Opec cut more than two million barrels of oil from its production yesterday,” said BetOnMarkets analyst David Evans.
“However, prices tumbled as most traders questioned if organization could actually enforce the production cut,” he said.
“Not helping oil prices is the fact that US inventories climbed again,” he added.
The US Department of Energy reported on Wednesday that American crude oil stockpiles climbed by 500,000 barrels in the week ending December 12, which was five times market expectations and indicated weakening US demand for energy.
Crude futures have tumbled as the large increase in US energy reserves heightened global demand worries amid a sharp worldwide economic slowdown.
New York crude sank $3.54 on Wednesday to close at $40.06 a barrel and London Brent oil slid $1.12 to finish at 45.53.
Ministers of the 13-member group, meeting in Oran, Algeria, agreed to the reduction in a bid to shore up prices, which have slumped from record highs above $147 in July due to falling demand in a slowing global economy.
It was the third time in three months that Opec has lowered production, and the largest reduction since the cartel introduced production quotas in 1982.
Before the latest cuts, Opec’s official daily output target was 27.3 million barrels a day.
Prices also slid despite the dollar’s recent sharp fall against other major currencies, days after the Federal Reserve slashed its base lending rate to virtually zero.
A weak dollar tends to lift the price of dollar-priced oil for buyers using cheaper currencies.
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