Oil prices jump 7% despite rise in US stockpiles

Associated Press / November 27, 2008
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HOUSTON - Oil prices rose sharply yesterday as a large interest rate cut in China and news of a possible Russian output cut appeared to counter another round of negative economic news and larger-than-expected crude stockpiles in the United States.

Trading followed this week's established pattern of volatility in the oil markets.

In Nymex trading, light, sweet crude for January delivery jumped more than 7 percent, or $3.67, to settle at $54.44 a barrel.

Oil opened the week with a 9 percent swing upward Monday after the United States said it would bail out Citigroup, followed by a nearly 7 percent decline the following day on a raft of ominous economic data.

There were no such swings for retail gasoline, however, which has trended only down. As many Americans hit the road for Thanksgiving, pump prices fell again overnight to a national average of $1.87 for regular unleaded, according to auto club AAA. It marked the lowest price since January 2005.

The average national price has fallen 80 cents in just the past month and is down 40 percent from a year ago - a rare bright spot for consumers in an otherwise dire economy.

"Of course, prices could go even lower than this, but this would tend to imply a far deeper global economic slowdown than we're currently experiencing and probably signal the arrival of a period of extreme economic adjustment as homes, factories, and transportation systems reduce energy consumption," said AAA fuel price analyst Geoff Sundstrom.

Crude's rebound yesterday was not unexpected, some analysts said, noting the holiday week and relatively low trading volumes on the floor of the New York Mercantile Exchange.

Crude initially gave back early gains after a new government inventory report showed far more crude and gasoline in storage than was expected.

For the week ended Nov. 21 crude inventories jumped by 7.3 million barrels, the Energy Department's Energy Information Administration said in its weekly report. Analysts had expected a boost of only 400,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline inventories rose by 1.9 million barrels. Analysts expected stockpiles to rise by only 300,000 barrels.

Demand for gasoline over the four weeks ended Nov. 21 was 2.8 percent lower than a year earlier, averaging about 9 million barrels a day.

But in a report released a day early because of the Thanksgiving holiday, the EIA said natural gas storage levels fell more than expected last week and are 3.1 percent below the year-ago average.

Also affecting prices was news that Russia, one the world's largest crude producers, may join OPEC in output cuts, Energy Minister Sergei Shmatko said in New Delhi on Tuesday, Press Trust of India news agency reported.

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