Monday, May 10, 2010

Oil Rises for First Time in Five Days on Europe Emergency Fund

May 10 (Bloomberg) -- Crude oil rose for the first time in five days on speculation an emergency fund being prepared by European policy makers will be sufficient to contain sovereign debt risks and help maintain growth in the region.

European Union governments may agree to an emergency lending mechanism worth around 500 billion euros ($645 billion), said a government official familiar with talks under way in Brussels. Oil prices will likely return to $80 to $85 a barrel once the debt crisis in Greece is resolved, Algerian Energy Minister Chakib Khelil said yesterday.

Europe’s “showing of solidarity I guess is a positive development,” said Toby Hassall, commodity analyst at CWA Global Markets Pty in Sydney. “It brings back some risk appetite that certainly got pounded last week.”

Crude oil for June delivery rose as much as $1.38 cents, or 1.8 percent, to $76.49 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $76.28 at 7:22 a.m. in Singapore

The contract fell on May 7 as much as 3.4 percent to $74.51 a barrel, the lowest intraday price since Feb. 16. Prices slid even as Royal Dutch Shell Plc suspended contracted deliveries of Nigerian Bonny Light crude after a pipeline fire.

Oil futures plunged 13 percent last week as the euro slumped and equity markets dropped on concern that Europe’s recovery may stall if Greece’s debt crisis was repeated in other nations.

The euro rose for a second day, climbing 1.2 percent to $1.2904 per dollar in early Asian trading. It reached $1.2529 on May 6, its lowest since March 2009.

U.S. ‘Over-supply’

Oil touched $87.15 a barrel on May 3, the highest level since October 2008. Prices may have run ahead of the recovery in demand, particularly given the “over-supply” in the U.S. market, said Hassall.

Still, global consumption is recovering, led by China and Asia’s emerging economies, and that will support prices, he said.

“There will be traders with a longer-term view looking at this as a better entry point for speculative positions,” he said. Markets remain volatile and risk appetite among most investors remains “quite low,” he said.

Brent oil for June settlement rose 80 cents, or 1 percent, to $79.07 a barrel on the London-based ICE Futures Europe exchange. It fell 2 percent to $78.27 on May 7.

Oil prices are at a reasonable level and the global recovery is proceeding at a “satisfactory” pace, OPEC Secretary General Abdalla Salem El-Badri said in Doha yesterday.

The Organization of Petroleum Exporting Countries pumps about 40 percent of the world’s oil. The group cut production last year to prevent a glut as the world’s worst recession since World War II slashed demand.

Demand in China, India and the Middle East is unaffected by the turmoil in Europe, and OPEC is likely to maintain its output quota for the rest of this year, Algeria’s Khelil said.