Oil Rises as U.S., European Governments Move to Support Banks

By Mark Shenk

Oct. 13 (Bloomberg) -- Crude oil rose, rebounding from last week's 17 percent plunge, as governments in the U.S. and Europe acted to stem the worst financial crisis since the 1930s.

Oil followed stock markets higher after the Federal Reserve led a push by central banks to flood the financial system with dollars to restore confidence. The International Energy Agency last week said global oil demand this year will grow at the slowest pace since 1993 as economies slide into a recession.

``We've moved from a complete lack of confidence to a modicum of confidence, which is allowing energy markets to rebound,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The economic action of the weekend won't be enough to ease the recessionary outlook, helping to keep a lid on prices.''

Crude oil for November delivery rose $2.87, or 3.7 percent, to $80.57 a barrel at 10:23 a.m. on the New York Mercantile Exchange. Prices, which are down 3.6 percent from a year ago, have dropped 45 percent from the record $147.27 a barrel reached on July 11.

Stocks rallied worldwide as the MSCI World Index rebounded from its worst week on record, and the euro rose the most in three weeks against the dollar because of the efforts to support the financial system.

``The restoration of optimism in markets in general has spread to commodities,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Traders are thinking that demand will not be as stricken as they feared last week.''


Goldman Sachs Forecast

Goldman Sachs Group Inc. lowered its crude oil price forecasts for a second time this year. It reduced its estimate for the U.S. benchmark West Texas Intermediate crude for the fourth quarter to $75 a barrel from $110, and cut its year-end target to $70 a barrel from $115, research analysts led by Jeffrey Currie and Giovanni Serio said in a report today.

``We clearly underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand,'' the analysts wrote.

Raymond James & Associates Inc. also cut its forecast for crude oil prices for the fourth quarter and for 2009. Oil in New York will average $95 a barrel this quarter, down from a forecast of $120, Raymond James analysts, including Marshall Adkins in Houston, wrote in a note today. Oil will average $90 a barrel in 2009, down from the previous forecast of $130.

New York oil futures dropped 17 percent last week, the biggest one-week decline since the U.S.-led invasion of Iraq in March 2003. Copper, nickel and aluminum also declined as equity markets plunged and the International Monetary Fund warned the world was on the cusp of a recession.

Brent crude oil for November settlement rose $2.32, or 3.1 percent, to $76.41 a barrel on London's ICE Futures Europe exchange.

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