Oil rises on renewed market optimism

Source The Australian

OIL futures rose overnight for the first session in four, interpreting stock market optimism as a good sign for petroleum demand.

Light, sweet crude for November delivery settled up $US3.49, or 4.5 per cent, at $US81.19 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange settled $US3.37 higher at $US77.46 a barrel.

Oil climbed as the Dow Jones Industrial Average made its largest one-day intraday point gain ever. The blue-chip indicator was recently up 700 points on European governments' commitment to bank recapitalization and prospects for similar moves from the U.S. Treasury.

"Had the stock market been lower and without any crisis intervention over the weekend, we'd probably be at $US75 oil today," said Peter Van Cleve, president of T.W. Energy Consulting, a brokerage in Kansas City, Mo.

Oil remains 44 per cent lower than its peak above $US145 a barrel, reached July 3. With the financial crisis expected to put the brakes on demand growth, analysts don't see prices revisiting the summer's highs anytime soon.

Once among the most bullish forecasters, commodity analysts at Goldman Sachs Group Inc. (GS) now see oil averaging $US86 a barrel in 2009, after slashing its forecast by $US37 Monday.

"We clearly underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," the analysts said in a note to clients.

A closely watched Goldman stock analyst who covers the oil industry, Arjun Murti, separately cut his price forecast for next year to $US75 a barrel, $US35 lower than his previous view.

The Organization of Petroleum Exporting Countries has been keenly watching oil prices, and scheduled an emergency production meeting Nov. 18. Some analysts say the cartel will act to defend $US80 oil.

Iran's OPEC governor said in an interview Sunday that no one is expecting an output increase. "It's obvious everybody is thinking about a cut," Mohammad Ali Khatibi told Dow Jones Newswires.

Qatar's oil minister called it a "very difficult situation for all the world and not just OPEC," without saying whether he supports a cut.

Saudi Arabia, OPEC's de facto leader, has yet to state its position on future output. OPEC in September agreed to adhere to its quotas.

Front-month November reformulated gasoline blendstock, or RBOB, settled 11.06 cents higher, or 6.1 per cent, at $US1.9176 a gallon. November heating oil settled up 13.10 cents, or 5.9 per cent, at $US2.3410 a gallon.