AP: Oil prices rebound after falling to 8-month low
NEW YORK (AP) — Oil prices rebounded slightly Tuesday, briefly rising back above $90 a barrel after some stability returned to the shaky financial system and prodded investors to put money back into the market.
It was crude's first positive session in five days. Some recovery was to be expected a day after prices skidded to an eight-month low on fears that a spreading financial crisis will undercut demand for crude. However, trading was volatile as investors remained uneasy, and analysts said oil would likely continue its downward trend given the ongoing stresses battering the global economy.
Investors tiptoed back into the markets after the Federal Reserve ramped up efforts to loosen jammed credit markets, announcing an emergency plan to buy up massive amounts of companies' short-term debt. The central bank said it would buy as much of the debt, known as commercial paper, as necessary to get markets running properly again.
The radical initiative brought a measure of calm to edgy financial markets, briefly pushing the Dow Jones industrial average back into positive territory a day after it fell more than 300 points.
"The oil market is glued to the hip of the stock market right now, so we're getting some stability from that," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
Light, sweet crude for November delivery rose $1.62 to $89.43 a barrel on the New York Mercantile Exchange. The contract fell $6.07 to settle on Monday at $87.81, the lowest level since Feb. 6.
Prices have fallen almost 40 percent since reaching a record at $147.27 on July 11.
Earlier Tuesday, crude briefly shot up over $5 to $93.02 a barrel after Iranian news reports claimed that Iran forced down a Western aircraft that accidentally entered its airspace. The report said the plane was later allowed to continue to Afghanistan after questioning its passengers, and oil prices quickly gave up most of their gains.
Analysts doubted that Tuesday's mini-rally marked a turning point for crude.
Investor expectations about oil demand have turned completely around in the last three months as financial turmoil has sparked concern that a recession could envelopethe U.S. and Europe.
"We've just seen a huge shift in sentiment where the focus isn't on supply anymore. It's on demand, and that demand continues to weaken," Ritterbusch said.
World stock markets recovered somewhat Tuesday but still had a ways to go to make up for steep plunges the day before on growing investor anxiety that the U.S. debt crisis is enveloping Europe. Germany announced a bailout package Sunday totaling $69 billion for Hypo Real Estate, the country's second-biggest commercial property lender. Ireland, Iceland, Denmark and Greece moved quickly to guarantee bank deposits to ease consumer anxiety.
Investors are looking for signs that the Organization of the Petroleum Exporting Countries may cut production if prices fall further. Iranian Oil Minister Gholam Hossien Nozari on Saturday called on fellow OPEC members not to pump too much oil in a bid to keep prices above $100.
However, OPEC may be reluctant to slash output since higher gasoline and heating costs would be a further drag on economic growth.
"I think it's very difficult for OPEC," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "With the international economy looking weak, decisions to support oil prices have to be balanced against not making the situation worse."
A stronger dollar has also been pressuring oil prices lately. The greenback weakened slightly Tuesday, helping send prices higher. Investors tend to buy commodities like oil to defend against dollar weakness and a hedge against inflation, but sell crude as the U.S. currency strengthens.
The 15-nation euro bought $1.3607 in early trading Tuesday, up from the $1.3457 late Monday in New York but still at lows not seen this year.
In other Nymex trading, heating oil futures spiked more than 4.65 to $2.5205 a gallon, while gasoline prices rose less than half a penny to $2.062 a gallon. Natural gas for November delivery rose about half a penny to $6.841 per 1,000 cubic feet.
In London, November Brent crude rose $1.97 to $85.65 a barrel on the ICE Futures exchange.