Oil Prices Rebound After Sharp Drop
By MATT CHAMBERS
November 14, 2007 3:28 p.m.
NEW YORK – Crude-oil futures rose Wednesday, reversing an options-related slide the previous session, as traders bet U.S. crude stockpiles fell last week for the fourth consecutive time and amid expectations for colder-than-normal weather in the U.S. Northeast.
Light, sweet crude for December delivery on the New York Mercantile Exchange rose $2.92, or 3.2%, to settle at $94.09 a barrel. On Tuesday, prices fell $3.45 to $91.17, the lowest close for a front-month contract since Oct. 30. Brent crude on the ICE futures exchange rose $2.18 to $91.01 a barrel. Brent settlement prices weren't yet available.
Crude oil slumped Tuesday after the International Energy Agency cut its demand forecasts for 2007 and 2008 and as expiration of December options inspired a big sell-off. The fall was the biggest since Aug. 6 and came amid record daily crude volumes of 880,731 on the New York Mercantile Exchange.
"Yesterday's sell-off was clearly driven by options expiration, and, apart from the IEA revisions, nothing has really changed" to alleviate perceived tightness, said Addison Armstrong, an analyst at TFS Energy Futures in Stamford, Conn. Armstrong expects slowing demand to eventually help push prices back to $70, but not in the near term.
"There's expectations that stockpiles will fall, and we're faced with forecasts for colder-than-normal weather in the Northeast for the rest of November, so there's still a bullish patch to get through," he said.
Analysts are expecting a 300,000-barrel draw in U.S. stockpiles for last week when the Department of Energy releases its weekly data Thursday, according to a Dow Jones Newswires survey of analysts Monday. Gasoline stocks are seen dropping by 100,000 barrels and distillates are seen down by 300,000 barrels. Refinery use is expected to grow 0.7 percentage point to 86.9% of capacity.
The National Weather Service is forecasting colder-than-normal weather in the U.S. Northeast, the world's biggest heating oil market, for the last part of November. The NWS is predicting the cold weather in both its six- to 10- and eight- to 14-day outlooks charts on its Web site.
Buying Wednesday was in a large part inspired by short covering, or exiting bets on a fall in prices, before the DOE data, said Jim Ritterbusch, president of trading advisory firm Ritterbusch and Associates in Galena, Ill., who expects crude oil stocks to fall by 2 million barrels.
Helping boost prices early Wednesday, the dollar fell close to its record low against the euro after a report showed U.S. retail growth slowed during October. The euro was hovering near $1.47 after the data, just off its all-time high $1.4753 reached Friday.
The weaker dollar has been an important factor in crude's more than 50% rise this year, because it has made crude less expensive for traders using other currencies and has blunted demand destruction from higher prices in nations that don't use the U.S. currency.
Front-month December reformulated gasoline blendstock, or RBOB, rose 5.37 cents, or 2.3%, to $2.3704 a gallon. December heating oil rose 7.13 cents, or 2.9%, to $2.5734 a gallon.
Write to Matt Chambers at matt.chambers@dowjones.com
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