Crude Oil Rises as AIG Rescue Plan Eases Economic Slowdown Risk

By Mark Shenk

Sept. 17 (Bloomberg) -- Crude oil rebounded from the biggest two-day decline in almost four years after the Federal Reserve agreed to rescue American International Group Inc., easing concern of a further economic slowdown in the U.S.

Oil rose as the Fed bailout prevented the bankruptcy of the nation's biggest insurer and Morgan Stanley announced that third- quarter profit fell less than estimated. Prices also advanced after a U.S. government report showed that crude oil and fuel stockpiles dropped because of Hurricane Ike.

``Prices began to rise when it became clear that there would be an AIG rescue and we got word that Morgan had decent earnings,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York.

Crude oil for October delivery rose $1.84, or 2 percent, to $92.99 a barrel at 11:13 a.m. on the New York Mercantile Exchange. Oil in New York has declined 3.2 percent this year and 37 percent from the record $147.27 a barrel reached on July 11.

Oil futures tumbled more than $10 a barrel in the first two days of the week on concern financial-market disruptions may weaken the global economy and cut fuel consumption.

Goldman Sachs Group Inc. cut its three-month forecast for crude oil to $115 a barrel from $149, citing the global credit crisis and demand weakness. Goldman Sachs said oil prices have ``overshot to the downside'' and the securities firm remains ``bullish'' that they will move higher.

Inventories Decline

U.S. crude-oil stockpiles fell 6.33 million barrels to 291.7 million barrels last week, according to the Energy Department. It was the fourth-straight inventory decline. A drop of 3.5 million barrels was forecast, according to the median of responses by 11 analysts surveyed by Bloomberg News.

U.S. fuel demand averaged 19.9 million barrels a day during the past four weeks, down 4.4 percent from a year earlier, the department said. Gasoline consumption averaged 9.21 million barrels a day over the period, down 2.6 percent.

Gasoline supplies declined 3.31 million barrels to 184.6 million barrels, the lowest since at least 1990, according to department figures. Analysts forecast that stockpiles of the fuel would drop 3.5 million barrels last week. Inventories have fallen 15 percent in eight weeks.

Gasoline for October delivery fell 2.48 cents, or 1 percent, to $2.376 a gallon in New York. Futures touched $2.3576, the lowest since Feb. 13.

``People are focused on the fact that demand is off by 2.6 percent rather than on inventories,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``The refineries that were shut because of Hurricane Ike will be restarting soon.''

Nigerian Attacks

Nigeria's main militant group in the Niger River delta said it destroyed an oil-pumping station operated by a unit of Royal Dutch Shell Plc and a pipeline as its raids against the oil industry entered a fifth day.

The Movement for the Emancipation of the Niger Delta said it destroyed the Orubiri oil-pumping station operated by a unit of Shell, and an oil pipeline operated by units of Shell and Eni SpA. A Nigerian military spokesman confirmed the raid.

Nigeria, which sits on Africa's largest hydrocarbon reserves, has lost about one-fifth of its output since February 2006 as a result of attacks.

Brent crude oil for November settlement rose $1.33, or 1.5 percent, to $90.55 a barrel on London's ICE Futures Europe exchange. Prices dropped the past 14 days, the longest stretch since the contract was introduced in 1988.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.