Oil Rises for Second Day as Governments Move to Support Banks

By Mark Shenk

Oct. 14 (Bloomberg) -- Crude oil rose for a second day, 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 $1.05, or 1.3 percent, to $82.24 a barrel at 9:30 a.m. Sydney time on the New York Mercantile Exchange. Prices, which are down 2.1 percent from a year ago, have dropped 44 percent from the record $147.27 a barrel reached on July 11.

Futures climbed $3.49, or 4.5 percent, to $81.19 a barrel yesterday, the biggest one-day percentage increase since Sept. 22.

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

`Restoration of Optimism'


``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.''

Raymond James & Associates Inc. 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 yesterday. Oil will average $90 a barrel in 2009, down from the previous forecast of $130.

Natixis Bleichroeder Inc. cut its forecast for oil prices in the fourth quarter to $75 a barrel from $130 and its 2009 projection to $80 a barrel from $142.50, according to Houston- based analysts Roger Read and Jeff Spittel.

``There is very much a financial focus here in the energy markets,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Prices plunged last week because people were worried about the banking sector, the falling stock market,'' and a recession. Strength in the stock market ``is allowing oil to rebound.''

Recession Concerns

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 decreased 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 $3.37, or 4.5 percent, to settle at $77.46 a barrel yesterday on London's ICE Futures Europe exchange.

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