Crude Oil Rises as Equities Rally, Fed Extends Emergency Loans

By Mark Shenk

Dec. 3 (Bloomberg) -- Crude oil rose for the first time in four days as U.S. equities rallied and the Federal Reserve extended terms of three emergency loan programs to mitigate the credit crisis.

Prices rebounded after reaching a three-month low yesterday, capping a decline of more than $100 from July’s record on speculation the U.S., the world’s largest energy consumer, may be in the longest slump since World War II.

“It’s all about demand, demand, demand,” said Kyle Cooper, an analyst at IAF Advisors in Houston.

Crude oil for January delivery gained 44 cents, or 0.9 percent, to $47.40 a barrel at 10:06 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, futures fell $2.32, or 4.7 percent, to $46.96 a barrel, the lowest settlement since May 20, 2005.

Oil has tumbled 68 percent in New York since reaching $147.27 a barrel on July 11. Fuel demand dropped as the U.S., European and Japanese economies slowed. The U.S. first entered a recession in December 2007, the panel of economists that dates American business cycles said Dec. 1.

Gasoline for January delivery declined 5.29 cents, or 4.8 percent, to settle at $1.0583 a gallon yesterday in New York.

Pump prices have followed futures lower. Regular gasoline, averaged nationwide, dropped 0.8 cent to $1.812 a gallon, AAA, the largest U.S. motorist organization, said on its Web site yesterday. It’s the lowest price since January 2005. The fuel has tumbled 56 percent from the record $4.114 a gallon reached on July 17.

Demand Projections

The Organization of Petroleum Exporting Countries, the International Energy Agency and the U.S. Energy Department slashed demand projections in November because of the economic outlook. U.S. fuel consumption during the four weeks ended Nov. 21 was down 6.6 percent from a year earlier, the department said in a report last week.

Prices are also lower because OPEC ministers put off debate on a second cut in output in as many months during a Nov. 29 meeting in Cairo.

“We won’t see the oil market rebound until either OPEC makes a substantial production cut or the economy begins to recover and we start to see demand for refined products firm up,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.

Prices plunged more than 9 percent Dec. 1 after OPEC’s last meeting. OPEC will reduce crude production when it meets in Oran, Algeria, this month, OPEC Secretary General Abdalla el-Badri said Dec. 1.

OPEC Cut ‘Certain’

“OPEC ministers are certain to enact a cut when they next meet,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. “Last week many producing countries said they were at the end of their tether.”

Oil prices will extend declines during the next 12 to 18 months if OPEC fails to implement “sufficient cuts” and supply stays at current levels, according to Christof Ruehl, the chief economist of BP Plc, Europe’s second-largest oil producer.

The world economy will stage a recovery from recession in 18 to 24 months, followed by “possible spikes” in oil prices, Ruehl told a conference in London yesterday.

Hedge-fund managers and other large speculators increased their bets that New York crude-oil futures would drop in seven of the past eight weeks, according to a U.S. Commodity Futures Trading Commission data.

U.S. Supplies

“Most of the drop is due to speculators de-leveraging,” said Joan McCullough, macro strategist at East Shore Partners, a brokerage in Hauppauge, New York.

The gain in oil prices to a record earlier this year was caused by speculators and not an imbalance in supply and demand, Saudi Arabian Oil Co. Chief Executive Officer Abdullah Jum’ah said on Nov. 26 in New Delhi. Saudi Aramco is the world’s largest state oil company.

The Fed extended the terms of the emergency-financing programs to April 30 from January 30, aligning their expiration dates with other central bank efforts to mitigate the global credit crisis. The programs enable financial institution to obtain loans that are no longer available from private investors at affordable rates.

A U.S. Energy Department report today will show that crude- oil supplies rose 1 million barrels last week, according to the median of 13 responses in a Bloomberg News survey. It would be the 10th consecutive weekly gain. Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, also rose, according to the survey.

Brent crude oil for January settlement declined $2.53, or 5.3 percent, to $45.44 a barrel on London’s ICE Futures Europe exchange yesterday, the lowest settlement since Feb. 15, 2005.

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