Shanghai Daily | 上海日报 -- English Window to China News

OIL prices fluctuated throughout the day yesterday, tracking closely with the path on Wall Street where an early rally failed to hold.

Light, sweet crude for December delivery rose US$1.37 to settle at US$62.41 a barrel on the New York Mercantile Exchange Monday, but swung as low as US$59.10 at one point.

In London, December Brent crude rose US$1.73 to settle at US$59.08 a barrel on the ICE Futures exchange.

The weakening in the US dollar, partially driven by the US$586 billion Chinese stimulus package, may be pushing investors to buy crude, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"We still have this connection between the oil market, the equity markets and the currency markets," Ritterbusch said.

Crude is bought and sold in dollars, and when the dollar falls against foreign currencies, investors often sell the US currency and buy oil.

Oil prices are also experiencing some spillover from the equity markets, in which any significant rise "conjures up images of a softer economic landing," Ritterbusch said.

The Dow Jones industrial average was up more than 215 points earlier yesterday before reversing course to fall more than 150 points to the 8,777 level in late afternoon trading.

China's announcement lifted Asian stock markets, as the Shanghai Composite Index surged 7.3 percent, Japan's benchmark Nikkei 225 index rose 5.8 percent and Hong Kong's Hang Seng index gained 4.8 percent.

But crude prices fell in midday trading with US investors paying close attention to a failed rally on Wall Street.

"What we know about demand in China is pretty anecdotal ... we don't really know what's going on," said Ritterbusch. "But it feels like demand for oil has slipped much more than people anticipated. An economic stimulus package did not increase demand in the US, nor did it offer a lot of support to the stock market, which is what people are watching now."

Oil prices have fallen about 56 percent since reaching a record US$147.27 in mid-July, and that's provided some good news for US motorists.

The disconnect to OPEC production continued, with waning demand taking precedent over how much crude is produced.

OPEC pumped an average 32.3 million barrels per day of crude oil in October, a 210,000 barrel-per-day decreased from September according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Organization of Petroleum Exporting Countries could further reduce oil output if a decision last month to slash production doesn't bolster plummeting oil prices, the group's president Chakib Khelil said Saturday

Khelil, who is also Algeria's energy minister, said OPEC seeks prices between US$70 and US$90 per barrel.

"If we go toward US$55, I expect OPEC to call an emergency meeting and announce another cut," Chu said. "The market expects them to cut again in December at the latest."

Ritterbusch said he expects OPEC to proceed with its announced production cuts but he expects compliance to be around 65 percent, "so that takes some of the bullish impact out of it."

Various oil ministers in the cartel will continue to chat up the possibility of additional production cuts, but the market should shrug them off as recent price drops are more about demand deterioration than supply-side issues, Ritterbusch said.

In the long-term, rising demand in the developing world will likely push prices higher, the International Energy Agency said last week.

According to a summary of the agency's World Energy Outlook report due to be published in full this week, the IEA has hiked its forecast for the price of a barrel of oil in 2030 to just over US$200 in nominal terms, compared to last year's estimate of US$108 a barrel.

In other Nymex trading, heating oil futures rose 2.7 cents to settle at US$2 a gallon, while gasoline prices gained 1.73 cents to settle at US$1.367 a gallon. Natural gas for December delivery jumped 39 cents to settle at US$7.24 per 1,000 cubic feet.