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Oil stabilises after sharp falls Oil prices hover at $55 a barrel
(about 4 hours later)
Oil prices fell very slightly in Asian trade after experiencing their sharpest drop in two years on Thursday. Oil prices fell further on Friday hovering around $55 a barrel, amounting to a weekly decline of some 10%.
The slide came after oil prices saw their most dramatic drop in two years a day earlier.
Prices had shed more than $2 a barrel after mild US weather led consumers to use less petrol and heating oil.Prices had shed more than $2 a barrel after mild US weather led consumers to use less petrol and heating oil.
US light crude oil had fallen to $55.59 a barrel in New York on Thursday and Brent crude fell to $55.11 in London. US light crude oil was 27 cents lower at $55.32 a barrel in afternoon trade on Friday in New York and Brent crude shed 22 cents to $54.89 in London.
In afternoon trade in Asia, US light crude was down 3 cents at $55.56 a barrel while Brent crude shed 4 cents to $55.07. Mild weather in the North East, the top heating oil consumer region, and in Europe has cut demand for fuel, bringing down prices since late December.
We expect that crude oil prices, after this week's whipping, will find more support in the weeks ahead Martin King, First Energy Capital
Mild weather in the north-east US, the top heating oil consumer region, and in Europe has cut demand for fuel, bringing down prices since late December.
The US Energy Department said stocks of distillates rose by two million barrels in the last week of 2006.The US Energy Department said stocks of distillates rose by two million barrels in the last week of 2006.
As well as the energy department data, the government released figures showing that petrol stocks rose by 5.6 million barrels in the last week of December - considerably higher than the 1.5 million barrels expected.As well as the energy department data, the government released figures showing that petrol stocks rose by 5.6 million barrels in the last week of December - considerably higher than the 1.5 million barrels expected.
'Demand pessimism 'Demand pessimism'
We expect that crude oil prices, after this week's whipping, will find more support in the weeks ahead Martin King, First Energy Capital
The price of oil has fallen sharply since peaking above $78 a barrel in July, despite the Opec cartel of oil producing countries threatening to trim its output.The price of oil has fallen sharply since peaking above $78 a barrel in July, despite the Opec cartel of oil producing countries threatening to trim its output.
Analysts said that the outlook for commodities in general had become less favourable.Analysts said that the outlook for commodities in general had become less favourable.
"Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead," said Barclays Capital in a note."Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead," said Barclays Capital in a note.
"This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower.""This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower."
There is also market speculation a hedge fund may be in line for huge losses caused by the position it has taken on oil prices, similar to the massive natural gas gamble that hit the multi-billion dollar Amaranth fund last year.There is also market speculation a hedge fund may be in line for huge losses caused by the position it has taken on oil prices, similar to the massive natural gas gamble that hit the multi-billion dollar Amaranth fund last year.
The price drop may also have been caused by funds switching into other assets.The price drop may also have been caused by funds switching into other assets.
Slow recovery
Analysts are now waiting to see what impact the output decision by Opec, to cut output by an extra 500,000 barrels per day (bpd) starting from 1 February, will have.Analysts are now waiting to see what impact the output decision by Opec, to cut output by an extra 500,000 barrels per day (bpd) starting from 1 February, will have.
"We expect that crude oil prices, after this week's whipping, will find more support in the weeks ahead" said Martin King, analyst at First Energy Capital. Martin King, analyst at First Energy Capital, said that crude stocks may soon drift lower and that the beginning of February would bring greater clarity regarding Opec's intentions for its next round of production cuts.
Mr King added that crude stocks may soon drift lower and that the beginning of February would bring greater clarity regarding Opec's intentions for its next round of production cuts. While the price is far off July's peak, analysts say it is too early to say whether oil will keep falling further.
"Its definitely not the end of the bull market," said Kevin Norrish, an analyst at Barclays Capital.
"We certainly expect prices to recover, although it may take a while given the very pervasive bearishness that currently is out there."