Middle-east Arab News Opinion | Asharq Al-awsat

Oil Rebounds Near $95 after Sell-Off on AIG Rescue | ASHARQ AL-AWSAT English Archive 2005 -2017
Select Page

SINGAPORE (Reuters) – Oil rebounded to nearly $95 a barrel on Wednesday, after two days of free fall, as an $85 billion bailout of American International Group sparked a relief rally on Wall Street.

Fresh attacks on Nigerian oil installations and supply disruptions in the United States after Hurricane Ike crashed through the Gulf of Mexico last week also supported prices, as did expectations of a drop in U.S. crude oil and products stocks.

U.S. light crude for October delivery rebounded $3.71 to $94.86 a barrel at 3:31 a.m. EDT after climbing earlier to $95.00. On Tuesday, they fell to a seven-month low in a broad cross-market sell-off, a more than $10 drop from Friday’s close.

London Brent crude for November delivery climbed $3.64 to $92.86 at the same time.

Oil futures are now little changed from the start of the year but slowing demand due to economic weakness in the United States and other top consumer nations has sent them tumbling more than 35 percent from the record high above $147 hit in mid-July.

“Everyone feared there would be a big meltdown in the financial sector that would affect the economy. Now they are hoping we’ll just get through the AIG situation and that may be lifting the market,” said Anthony Nunan, a risk management executive at Tokyo-based Mitsubishi Corp.

The U.S. government agreed to rescue AIG, preventing the world’s biggest corporate bankruptcy just days after investment bank Lehman’s collapse threw global markets into turmoil.

The Fed will provide AIG a bridge loan of $85 billion and take an 80 percent stake in the firm, defusing the immediate risk of a financial system meltdown but burdening the U.S. taxpayer more following previous government bailouts.

This week’s upheaval in the U.S. financial system led global markets to spiral lower, with oil tumbling to a seven-month low, as investors fled to safe-haven assets, such as gold and bonds.

It also prompted investment bank Goldman Sachs to cut its forecast for WTI crude oil prices to $123 a barrel on average in 2009, down from $148 previously.

“We stand by our bullish view on oil, but just think it will now take longer to get to our previous price targets,” the bank’s commodity research team said in a note to clients.

Attacks this week on oil installations in the Niger Delta, largely ignored earlier this week as investors focused on the credit crunch, also helped prices.

On Wednesday, Nigeria militants said they attacked another Shell-operated oil flow station and threatened to broaden their “oil war” to offshore fields.

And Hurricane Ike toppled several oil and natural gas production platforms in the Gulf of Mexico, signaling that a full recovery of output from the region could be slow.

U.S. gasoline stockpiles are already running at their lowest level since November 2000, and could drop to their lowest on record due to the effects of Ike, according to a Reuters poll of analysts. The EIA data are due later on Wednesday.