Sun, Aug 19, 2007 - Page 10 News List

Oil prices rebound as storm menaces energy installations


Oil prices rebounded on Friday on news of US Federal Reserve action to ease a credit crunch and a major hurricane plowing toward the Gulf of Mexico, home to critical energy installations.

New York's main futures contract, light sweet crude for delivery in September, climbed US$0.98 to close at US$71.98 per barrel.

In London, the price of Brent North Sea crude for October delivery rose US$0.67 to settle at US$70.44 per barrel.

Oil prices endured a volatile week, rebounding on Friday after the US Federal Reserve moved to ease a credit crunch crisis that traders fear will cause a global economic slowdown.

Worries about the credit crisis roiled the oil market this week because any slowdown in economic growth reduces demand for oil.

In a move aimed at boosting the liquidity of commercial banks, the US central bank slashed its discount rate -- the short-term loan rate it charges banks -- to 5.75 percent.

"Any Fed move that weakens the dollar adds support to oil prices. The good news, if any, is that the problems in the US economy rule out a decrease in OPEC production and boost the probability of an increase," WTRG Energy Economics analyst James Williams said.

Fears that Hurricane Dean could damage energy installations in the Gulf of Mexico next week also drove prices higher. The storm intensified into a major, category-three hurricane as it moved across the Caribbean in the direction of the gulf.

"According to some of the models, it has the potential to swing into the Gulf of Mexico and threaten the western gulf oil and natural gas assets into the middle of next week," MF Global analyst John Kilduff said.

"It looks like it's going to be a monster storm, a huge hurricane that could present the potential for tremendous damages the way Katrina and Rita already did two years ago," he said.

Still, some analysts warned that prices could drop again next week in a continuation of volatile trading conditions.

"If by some miracle the damage from Dean is not that bad and the stock market is lousy we could see a big drop in [the crude] price next week," said Phil Flynn, an analyst at Alaron Trading.

It was a roller-coaster week for oil prices, in line with disruptions on other markets as the US credit worries spread around the world. Crude prices plunged on Thursday as hefty declines on world stock markets left traders fretting about potentially risky investments in the commodities markets.

The US Department of Energy said on Wednesday that US crude inventories slumped by 5.2 million barrels last week -- more than double a fall of 2.5 million forecast by analysts.

On Tuesday, OPEC increased its forecast for world oil demand growth this year. OPEC said in a monthly report that it would hit 1.3 million barrels per day, "slightly higher" than the estimate given last month.

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