Oil Trades Near $40 as Investors Buy Futures to Gain From Fall

By Christian Schmollinger

March 3 (Bloomberg) -- Crude oil was little changed near $40 a barrel after prices rose as traders closed out bets that prices would decline amid the global recession.

Prices have fallen 11 percent since climbing to $45.22 a barrel on Feb. 26 after data releases showed the U.S., Chinese and Japanese economies are contracting. The countries are the top oil consumers. Crude has traded between a low of $33.87 a barrel and a high of $48.81 since Dec. 15.

“Crude oil has been moving within a narrow range,” said Ken Hasegawa, a commodity derivative sales manager at Newedge Group in Tokyo. “That makes it difficult to have a long-term position. So a short-term strategy is to sell at the high of $45 and buy back at $40 or so.”

Crude oil for April delivery was at $40.24 a barrel, up 9 cents, in electronic trading on the New York Mercantile Exchange at 2:18 p.m. Singapore time. The contract traded as much as 1.1 percent higher at $40.60 a barrel today and fell as much as 1.8 percent to $39.44 a barrel.

Yesterday, futures plunged $4.61, or 10 percent, to settle at $40.15 a barrel, the biggest one-day drop since Jan. 7, after global equity markets slumped on reports of manufacturing declines in China and the U.S. Prices are down 9.4 percent so far this year.

“The economy continues to be a drag on oil fundamentals,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “I think that $40 remains a rather strong level to support prices.”

Equities Slump

The Nikkei 225 Stock Average declined as much as 2.6 percent, set for the lowest close since October 1982. The MSCI Asia Pacific Index dropped 1.2 percent to 71.63, set for its weakest finish since August 2003, at 10:20 a.m. in Tokyo.

The Dow Jones Industrial Average declined 299.64 points, or 4.2 percent, to 6,763.29 yesterday. The Standard & Poor’s 500 Index dropped 34.27 points, or 4.7 percent, to 700.82.

Brent crude oil for April settlement was at $42.15 a barrel on London’s ICE Futures Europe exchange at 2:13 p.m. Singapore time. The contract traded between $42.56 a barrel and $41.60 a barrel today. It declined $4.14, or 8.9 percent, to end the session at $42.21 a barrel yesterday.

Commodities yesterday had the biggest drop since October as the deepening global recession slashed demand. The Reuters/ Jefferies CRB Index of 19 raw materials fell 11.23, or 5.3 percent, to 200.34, the biggest decline since Oct. 10. The 6.6 percent decrease on that date was the largest since the debut of the index in 1956.

U.S. Stockpiles

U.S. oil supplies probably rose last week as imports climbed and refineries ramped up operating rates, a Bloomberg News survey showed.

Crude-oil stockpiles increased 1 million barrels in the week ended Feb. 27 from 351.3 million the week before, according to the median of eight estimates by analysts.

“With OPEC cutting and the refiners operating at low levels, any builds that we’re seeing are really indicating poor demand,” said Purvin & Gertz’s Shum.

Refineries probably operated at 81.9 percent of capacity, up 0.5 percentage point from the week before, the survey showed.

Gasoline stockpiles probably dropped 750,000 barrels from 215.3 million in the prior week, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.35 million barrels from 141.6 million.

The Energy Department is scheduled to release its weekly report on March 4 at 10:30 a.m. in Washington.

OPEC Comments

Officials from the Organization of Petroleum Exporting Countries, the supplier of 40 percent of the world’s oil, gave conflicting signals on their intentions to cut output further when they meet in Vienna on March 15.

The group “will likely” reduce supplies to support prices, Algerian Oil Minister Chakib Khelil said in an interview in Madrid yesterday. Earlier this week, Iran’s oil minister said OPEC is unlikely to lower crude production when it meets.

OPEC members have reached almost 100 percent compliance with existing cuts at the end of February, Khelil said. The group has implemented as much as 80 percent of previously announced supply cuts, preventing a sharp fall in the oil price, Iranian Oil Minister Gholamhossein Nozari said in comments posted March 1 on the Web site of state-run Iranian Students News Agency.

“I don’t think that OPEC will cut because they aren’t making any revenue at the current low level of sales,” said said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “If they cut further, they’ll be making even less.”

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.