Crude Oil Rises Ending Three-Day Slump on U.S. Supply Increase (printed this morning) Dec. 3 (Bloomberg) -- Crude oil in New York rose, ending a 13 percent slump in the past three days, after traders bought back contracts that they sold because U.S. fuel inventories had the biggest rise in four months.
Oil prices had fallen almost $6 a barrel since a U.S. government report two days ago showed supplies of distillate fuels, which include heating oil, rose 2.3 million barrels last week.
``After the three day sell-off a 30 cents to 50 cents reaction isn't a big surprise,'' said Tony Machacek, a broker at Bache Financial Ltd. in London. ``It's a bit of short covering ahead of the weekend,'' he said, referring to purchases to exit previous bets on a decline in price.
Crude oil for January delivery rose 13 cents, or 0.3 percent, to $43.38 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 7.32 p.m. Tokyo time. Brent crude oil futures for January settlement was up 15 cents, or 0.4 percent, at $40.30 a barrel on London's International Petroleum Exchange at 10.32 a.m.
``Later this afternoon we may see prices firm up because the drop has been fairly steep over the last two days, but overall the down-trend in prices seems to be in place,'' Paul Goodhew, a broker at ABN Amro in London said.
Oil prices had fallen almost $6 a barrel since a U.S. government report two days ago showed supplies of distillate fuels, which include heating oil, rose 2.3 million barrels last week, the biggest gain in four months.
U.S. supplies of distillate are 10 percent lower than a year ago and the risk of supply disruptions in the Middle East may help lift oil prices, David Thurtell, commodity strategist at Commonwealth Bank of Australia in Sydney, said.
``Another few bucks lower and they'd start to become good value'' in the short-term, he said. ``Inventories are still pretty low. They are bouncing along the bottom of their historic range.''
Distillate Supplies
U.S. distillate supplies rose 2.3 million barrels to 117.9 million barrels last week, 10 percent less than a year earlier, the country's Energy Department said Dec. 1. Heating oil supplies were 10 percent less than a year earlier and 7 percent less than the 10-year average.
Heating oil for January delivery fell 7.21 cents, or 5.4 percent, to $1.2572 a gallon in New York, the lowest close since Sept. 16. It was at $1.2631 in after-hours trading.
``Inventories are still tight,'' said Ashok Sekar, a trader at Tricom Futures Services Pty in Queensland, Australia. ``It may be warm for the next seven days but there's no reason you can't get a big cold snap after that.''
In the period from Dec. 3 through Dec. 9, heating demand in the U.S. Northeast will be 15 percent below normal, according to forecaster Weather Derivatives Inc. of Belton, Missouri.
More Needed
Warmer than average temperatures may help refiners restore fuel supplies, though there is concern about how long this may take, said Chris Mennis, owner of oil trader New Wave Energy in Aptos, California.
``We need about 130 million barrels to be comfortable'' for winter, said Mennis. Stockpiles needed to rise by about 4 million to 5 million barrels a week and ``if we don't see some big builds that may bring some buying back into the market.''
Some forecasters expect a colder-than-normal winter. Last month, Earth Satellite Corp., a Rockville, Maryland-based consultant said it forecasts 1.5 percent more heating degree-days this winter compared with the 30-year average. The estimate was revised lower from 2 percent. Heating-degree days are measurements that gauge the amount of energy needed to heat a building.
Speculators
Hedge-fund managers and other large speculators helped push prices lower yesterday as they sold contracts when support levels were breached. Prices fell as low as $42.50 yesterday, a complete retracement of the rise in prices since Sept. 10. Yesterday's decline stalled as prices approached the market's 200-day moving average of $42.40.
``I think it goes higher,'' said Tricom's Sekar. ``I don't see sub-$40 oil this year'' unless there is a real slowing in demand in countries like China and the U.S., he said.
Technical traders who try to forecast a market's direction by analyzing patterns in prior price and volume data, sold futures yesterday when prices fell below $45.25, traders said.
``Breaking below $45.25, which was the low on Nov. 15, was key,'' said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. ``Getting past $45 also triggered more selling.''
OPEC to Meet
Next support for New York crude oil is $43.22, Tricom's Sekar said. That marks a 61.8 percent retracement of the rise in oil prices from the low of $35.52 reached June 30, based on Fibonacci analysis. The next would be $41.30, matching the low reached on Aug. 30, he said.
Fibonacci analysis, named for a 13th Century mathematician, is based on the premise that markets turn at predictable points between their highs and lows.
The Organization of Petroleum Exporting Countries will meet in Cairo Dec. 10 to discuss its self-imposed production quotas and target prices. Delegates from Indonesia and Nigeria yesterday said they expect the group to keep its limit on output at 27 million barrels a day excluding Iraq, which has no quota.
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