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Oil falls to near $58 on pullback from rally

business Updated: May 11, 2009 10:59 IST
Oil falls to near $58 on pullback from rally

Oil prices fell to near $58 a barrel on Monday in Asia as investors mulled whether weak US crude demand and bursting supplies justify building on the recent strong rally. Benchmark crude for June delivery was down 38 cents to $58.25 a barrel by midday in Singapore, in electronic trading on the New York Mercantile Exchange. On Friday, the contract rose $1.92 to settle at $58.63 a barrel, the highest level this year.

Oil prices have jumped this month from near $50 as crude investors follow stock markets that have surged on expectations the worst of a severe recession is over.

The Dow Jones industrial average rose 2 per cent on Friday while the Standard & Poor s 500 index climbed 2.4 per cent, adding to a dizzying 37.4 per cent leap since early March.

"Oil has been strongly influenced by stocks lately," said Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore. "Investors are counting on a global economic recovery to boost demand."

Investors have brushed off news of overflowing US oil inventories, which rose to a 19-year high last week. Then on Friday, the US Labor Department said that employers cut 539,000 jobs in April. That was less than expected and the smallest reduction in six months. However, the nation's unemployment rate climbed to 8.9 per cent, the highest since late 1983. "Investors are really trying to look for green shoots," Shum said. "With the unemployment rate rising, there isn't any sign in the US that oil demand is coming back."

"The price is very strong relative to the fundamentals." Oil prices surged to a record $147 a barrel in July on investor optimism that growing consumer demand, especially in emerging economies such as China and India, would outstrip limited supplies. Prices plunged to below $35 in March on the back of this year's global slowdown.

"A rally that's not driven by fundamentals can only go so far," Shum said. "At some point, there's going to be a pullback." In other Nymex trading, gasoline for June delivery fell 2.20 cents to $1.68 a gallon and heating oil dropped 1.13 to $1.51 a gallon. Natural gas for June delivery slid 4.1 cents to $4.27 per 1,000 cubic feet.

In London, Brent prices fell 38 cents to $57.76 a barrel on the ICE Futures exchange.