Oil up: Shorting pushes price
Shorts push oil up 3%
Oil prices rose 3% today, with short covering amid choppy pre-holiday trade outweighing a gloomy demand outlook.
US light crude for February delivery settled up $1.11 to $36.51 a barrel. The contract, which expires on Tuesday, sank yesterday to $33.20, the weakest price in nearly a month.
London Brent crude for March delivery fell $1.11 to end at $46.57 a barrel, maintaining an unusual premium to the US benchmark due to growing U.S. stockpiles.
"There's short-covering on the February contract, which is expiring on Tuesday," Andy Lebow, broker at MF Global, told Reuters.
"The market contango is also extraordinarily wide, also provoking covering here," he added, referring to the March NYMEX contract's $6 premium over February.
Prices had fallen earlier as the International Energy Agency revised down its estimate for 2009 demand by 940,000 barrels per day to 85.3 million bpd, a fall of about 500,000 bpd year-on-year, as the economic slowdown erodes consumption.
In its report, IEA said Chinese oil demand would grow at its slowest rate in eight years, rising by just 90,000 bpd in 2009 as its GDP growth slows to 6.5%.
The Organization of the Petroleum Exporting Countries, which already has cut 4.2 million bpd in supply from the world market since September, could quickly deepen output cuts, if needed, OPEC President Botelho de Vasconcelos has said.
The global financial crisis has forced many economies into recession, reducing energy consumption and dragging down oil prices by more than $110 since a record peak in July.
Bank of America, which recently absorbed Merrill Lynch, and Citigroup both reported huge losses for their fourth quarters on Friday, including billions of dollars of write-downs from exposure to debt and real estate markets.
One potential support for prices is the continuing contract dispute between Russia and Ukraine that led to a cut of gas supplies through Ukraine to Europe, affecting countries across the continent.
The European Commission said on Friday that Russia and Ukraine had a last chance this weekend to solve the dispute, or risk seeing their relations with the bloc suffer.
The European Union normally gets a fifth of all its gas from Russia via Ukraine.
The loss of this supply has forced generators to switch to oil and coal at a time when Europe is experiencing bitter winter temperatures.