Oil hovers around $89 after Fed cut halts slide | business | Hindustan Times
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Oil hovers around $89 after Fed cut halts slide

business Updated: Jan 23, 2008 08:47 IST
Luke Pachymuthu
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Oil steadied above $89 on Wednesday after an emergency Federal Reserve interest rate cut halted a global financial market sell-off but failed to fully dispel fears of recession in the world's biggest oil consumer.

In a rare policy move outside of its ordinary meetings, the Federal Reserve cut interest rates by 75 basis points to 3.5 per cent on Tuesday, its biggest cut in more than 23 years and a move that some traders said smelled of panic.

US crude rose 14 cents to $89.35 a barrel by 0120 GMT after falling as low as $86.11 a day ago amid a global stock market rout.

London Brent crude inched down 2 cents to $88.43, less than $1 below its close on Friday before the worst of the turmoil hit global markets.

Some analysts said traders had been selling oil and other commodities to cover margin calls in other markets.

"The Fed cuts....will certainly shore economic sentiment that has been driving prices lower recently, and shift attention back to underlying tight fundamentals," BNP Paribas senior oil analyst Harry Tchilinguirian said in a research note.

Oil slid sharply on Monday and Tuesday as world stock markets momentarily posted their steepest losses since September 11, 2001 amid widespread concerns that the impact from the US credit and housing crisis could trigger a recession, curbing the steady rise in oil demand that has fuelled prices for five years.

Major Asian share markets that had been battered a day ago roared back to life on Wednesday, with Australia's index surging 7 percent, while the euro's further gains against the dollar also lent support to the energy complex.

While down 10 per cent from their all-time peak above $100 a barrel hit January 3, oil prices are still up more than 60 percent from one year ago, supported by tight inventory levels, OPEC output restraints and strong demand from investors seeking higher returns and a possible hedge against inflation.

Goldman Sachs said that while oil prices could slide into the low $80s if speculators liquidated their long positions, strong fundamentals would probably prevent funds from selling out completely.

US crude oil stocks, which rose for the first time in nine weeks last week after hitting their lowest since 2004, are expected to have risen by another 2.1 million barrels last week, according to a preliminary Reuters poll.

The government inventory data, due out a day later than usual on Thursday due to Monday's US holiday, are also likely to show a 1.4 million barrel rise in gasoline stocks as refiners begin to build up supplies ahead of summer, the poll showed.

Oil's recent slide has relieved pressure on the Organization of the Petroleum Exporting Countries (OPEC) to agree on a production increase when it meets on February 1.

Several OPEC ministers have hinted that it will keep production steady at next week's meeting. On Tuesday UAE's oil minister Mohammed al-Hamli said that the recent price drop was a "positive thing".