Crude futures ended the year on a high note, surging over a glimmer of hope that the worst of the decline in oil demand would be confined to 2008.
Light, sweet crude for February delivery settled $5.57, or 14.3%, higher at $44.60 a barrel on the New York Mercantile Exchange. The market has some way to go before it can be said to have recovered from nearly six months of continuous declines, however. Even after Wednesday’s gains, oil prices ended the year more than $50 below where they started.
February Brent crude on the IntercontinentalExchange futures exchange closed up $5.15 at $45.30 a barrel.
The slide in oil prices has come amid a barrage of indications that global demand is weakening due to the economic downturn. On Wednesday, several new data points offered some comfort that the pace of decline is easing in the U.S., the world’s biggest oil consumer.
The U.S. Labor Department reported fewer new jobless claims than expected last week, though the total number of people claiming benefits is at its highest since 1982. U.S. equities markets took the data as a reason to rally, however, boosting oil in the process. The Dow Jones Industrial Average was up 1.4% to 8783 shortly before pit trading closed in the oil market and was recently trading 1.7% up at 8812.
“We’ve had a huge downturn in the last five months, and a lot of people were looking for any excuse to find and book [profits] before year’s end,” said Jim Ritterbusch, president of trading advisory firm Ritterbusch & Associates in Galena, Ill. “They found one of those excuses in further strengthening of the stock market.”
Gasoline demand similarly dropped less than foreseen, with the U.S. Energy Information Administration reporting a year-on-year decline of 2.2% in the week ended Dec. 26. Recent weeks had seen demand fall by 2.7% or more. Refinery utilization also fell unexpectedly to 82.5%, at least an 18-year low for December, raising the possibility that a sudden surge in demand could lead to a rapid inventory drawdown.
Heating oil in particular could be vulnerable, as refiners would not easily be able to respond to a cold snap in the U.S. Northeast.
But the market will likely have to wait until next week to determine whether Wednesday’s rally was the start of a long-awaited rebound or just a fluke. Both pit and electronic trading are closed Thursday, and post-holiday activity is expected to be low Friday.
“The path of least resistance appears to be up for now,” said Tom Bentz, a broker and analyst with BNP Paribas in New York.
Front-month January reformulated gasoline blendstock, or RBOB, settled 12.29 cents, or 13.9%, higher at $1.0082 a gallon. January heating oil settled 11.77 cents, or 9.1%, higher at $1.4057 a gallon.
(Dow Jones & Rigzone)