SINGAPORE (AP) — Oil prices rose slightly yesterday in Asia as investors looked for signs that US interest rate cuts and a government bailout of two key automakers could help cushion what may be the worst recession in decades.
Light, sweet crude for February delivery gained 50 cents to $42.86 a barrel in electronic trading on the New York Mercantile Exchange by mid-afternoon in Singapore. The contract fell Friday 69 cents to settle at $42.36.
Investors were somewhat encouraged by Friday’s announcement of Washington’s $17.4 billion bailout of ailing car giants General Motors Corp. and Chrysler LLC and by the Federal Reserve’s move Tuesday to cut its federal funds rate target to a range of zero to 0.25 percent.
“The rate cut shows the concern around demand in the US,” said Gerard Burg, minerals and energy economist with National Australia Bank in Melbourne. “We’re in a period of demand weakness that we haven’t seen in at least a decade, and economic conditions don’t look particularly encouraging.”
The Organization of Petroleum Exporting Countries said last week it planned to reduce its output quotas by 2.2 million barrels a day, the group’s largest-ever cut. OPEC leaders have said they would like to see oil prices return to above $70 a barrel.
Another large OPEC production cut may not bolster prices in a market preoccupied with falling demand, Burg said.
“I’m very skeptical with demand at this level that you can actually get prices back up there, even with a sizable cut,” Burg said. “If they cut again, it would be cutting off their nose to spite their face because they would be losing the revenue from the lower volume.”
The January contract, which expired Friday, fell $2.35 overnight to settle at $33.87, the lowest level since early 2004. With US stockpiles rising at the key storage facility in Cushing, Oklahoma, the price dropped as brokers and traders attempted to unload supply for whatever price they could get.
Crude prices have tumbled 70 percent since peaking at nearly $150 in July as a slowing global economy has eaten away at crude demand.
One potential boost to demand is the falling price itself. The average price of U.S. regular gasoline Friday was $1.66 a gallon, oil industry analyst Trilby Lundberg said. The last time gas prices dipped so low was in February 2004, while the all-time high was on July 11, 2008, when the price peaked at $4.11 a gallon.
In other Nymex trading, gasoline futures rose 1.51 cents to 99 cents a gallon. Heating oil gained 2.25 to $1.41 a gallon while natural gas for January delivery fell 2.4 cents to $5.31 per 1,000 cubic feet.
In London, February Brent crude rose 20 cents to $44.20 a barrel on the ICE Futures exchange.