Oil prices rose above $68 a barrel in Asia on Monday, rising in tandem with advancing regional equity markets but traders predicted gains may be capped by lingering worries over the health of the global economy.
Light, sweet crude for December delivery traded as high as $69.19 but pared gains to be up 22 cents at $68.01 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract settled at $67.81 on Friday, up $1.85 following a late-session surge on the back of a Wall Street rally. "Oil prices have edged up this morning in sync with Asian equity markets, which are firmer as investor confidence rises," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.
Oil investors have been tracking equity indexes as a barometer of global economic health. In trading Monday, Hong Kong's Hang Seng index was up 2.7 percent, while South Korea's Kospi was up 1.4 percent. Japan's markets were closed for holiday. Shum said U.S. presidential elections on Tuesday will help erase some uncertainties about future government policies, likely giving a further boost to equity markets and oil futures, especially if there's a convincing win by either Democrat Barack Obama or Republican candidate John McCain.
But persistent concerns that the weak global economy will weigh on oil demand well into 2009 will keep a lid on prices, he said. The US Commerce Department last week said the economy shrank 0.3 percent in the July-September quarter, the worst showing for the world's largest economy in seven years.
"There is still likely downward volatility in oil futures. I expect oil to trade within the $60-$70 range in the near term," Shum said. The US employment data due later this week is likely to underline the economy's weakness and will cap gains in oil prices, he said.
Oil prices have fallen about 54 percent since peaking above $147 a barrel in mid-July. In October alone, crude recorded its biggest ever drop as prices tumbled 32 percent.
The drop in oil come despite recent moves by the Organization of the Petroleum Exporting Countries to cut 1.5 million barrels of production a day.
Venezuela's Oil Minister Rafael Ramirez has said OPEC, which controls about 40 percent of world crude oil production, will need to cut production by at least another 1 million barrels daily to boost falling prices.
Opinion, however, is mixed on whether all members of the cartel will follow through on the cuts _ or keep churning out as much crude as they can on fears that prices will plummet more. Shum said OPEC's recent output cut hasn't managed to offset the decline in demand but a second cut may help tighten supply in the market and support oil prices in the long run.
In other Nymex trading, gasoline futures rose 0.29 cents to $1.4988 a gallon. Heating rose rose 1.85 cents to $2.1027 a gallon and natural gas for December delivery was up 0.6 cents at $6.789 per 1,000 cubic feet.
In London, December Brent crude were down 7 cents to $65.46 a barrel on the ICE Futures exchange.