Oil rises above $71
NEW YORK -- Oil prices rebounded back above $71 a barrel Friday as traders bet that OPEC will announce a sizable production cut at an emergency meeting next week in an effort to stem crude's stunning collapse.
The downward momentum on oil has grown more feverish in recent days, lopping more than $11 off prices in the past three trading sessions and pushing the national average for gasoline down to just above $3 a gallon.
The pullback comes as a widening economic slowdown forces a wholesale contraction in U.S. energy demand: Americans are driving less, airlines are keeping more planes on the ground and businesses large and small are ramping down operations.
Worried about the financial fallout of the price drop, the Organization of the Petroleum Producing Countries, which controls 40 percent of the world's oil supply, called a special meeting for next Friday in Vienna, Austria to address the slide. Underscoring the cartel's anxiety, it moved up the date of the meeting by nearly a month.
An Iraqi lawmaker said Friday the government expects to cut its budget next year by $15 billion because of falling oil prices. Abbas al-Bayati, a senior lawmaker of the United Iraqi Alliance, the largest Shiite bloc in parliament, said the recent plunge would cut into earlier budget estimates, which were made when crude was hovering around $120 a barrel.
Analysts say OPEC could decide to trim output by as much as 1 million barrels a day in a bid to halt the slide, in addition to a 500,000 barrel per day cut announced last month.
That may have led some traders to bid up oil on Friday, though any rally will likely be short-lived given the rapidly waning appetite for petroleum products, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn..
"Demand is really in trouble," Armstrong said. "Every week we get figures showing falling U.S. demand for energy. European demand is just beginning to turn down, and all indications are that China is in for a significant economic downturn."
"We could have prices in the low $60 range very soon," he added.
Light, sweet crude for November delivery fell $1.53 to $71.38 a barrel on the New York Mercantile Exchange after earlier rising as high as $73.02 a barrel. On Thursday, prices lost $4.69 to settle at $69.85 a barrel.
Oil is now down $75 — or 51.5 percent — since catapulting to a record high of $147.27 on July 11.
The decline continues to weigh on pump prices in the U.S. A gallon of regular gasoline fell another 4.4 cents overnight to a new national average of $3.04, according to auto club AAA, the Oil Price Information Service and Wright Express. That's 26 percent lower than the all-time high of $4.114 reached July 17 but 8.7 percent higher than a year ago.
Still, 23 states are now seeing average pump prices below $3, according to AAA, and the average for the entire country is expected to hit that mark as early as Saturday.
Investors have been concerned that recent turmoil in the global financial system will trigger a worse than expected slowdown in economic activity. Declines accelerated Thursday after the U.S. Energy Information Administration said in its weekly report that crude stocks rose by 5.6 million barrels last week, well above the 3.1 million barrel increase expected by analysts surveyed by energy research firm Platts.
While U.S. energy supplies have been swelling because of falling demand, they've also grown as U.S. Gulf Coast energy installations continue to increase production after shutdowns caused by Hurricanes Ike and Gustav.
The EIA also said gasoline stock rose by 7 million barrels last week, more than double the build analysts had expected. Demand for gasoline over the four weeks ended Oct. 10 was 5.2 percent lower than a year earlier, averaging nearly 8.8 million barrels a day, the EIA said.
Still, some analysts say crude's decline has been overdone amid the panicked selling in world equity markets.
"Even in a dire economic situation, a lot of energy use isn't discretionary, so I expect prices to bounce back at some point," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney.
In other Nymex trading, heating oil futures rose 4.91 cents to $2.1599 a gallon, while gasoline prices gained 4.72 cents to $1.6692 a gallon. Natural gas for November delivery jumped 17.5 cents to $7.39 per 1,000 cubic feet. Forecasts for cold weather in several U.S. regions were seen boosting demand for natural gas for heating.
In London, November Brent crude gained 70 cents to $68.54 a barrel on the ICE Futures exchange.