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Oil prices higher in late Asian morning trade

Wednesday, January 16, 2008

SINGAPORE (Thomson Financial) - Oil prices rose in late Thursday morning trade after the International Energy Agency, policy adviser to major industrialized nations, said it is keeping its 2008 forecast for oil demand unchanged despite growing expectations of a US recession.

The market largely ignored a report showing increasing US crude reserves and US President George W. Bush's call for OPEC members to hike output.

In late morning trade, New York's main oil futures contract, light sweet crude for delivery in February, gained 9.0 cents to 90.93 dollars per barrel.

The contract closed down 1.06 dollars at 90.84 in trading on the New York Mercantile Exchange on Wednesday.

Brent North Sea crude for March delivery was 10 cents higher at 89.60 dollars a barrel.

The contract for February settled down 1.23 dollars at 89.75 in London on Wednesday.

Prices fell after the US Department of Energy said American reserves of crude climbed by 4.3 million barrels in the week ended January 11.

The reserve increase was well above market expectations for a gain of 1.25 million barrels and broke eight weeks of falls.

"The rebound is part of the volatility of daily trading even though the drop in prices yesterday was substantial," said Victor Shum, senior principal at Purvin and Gertz international energy consultants in Singapore.

Shum added that while the "increase in crude oil inventories was substantial", inventories are still below the five-year average for this time of year.

At the same time, the International Energy Agency, policy adviser to major industrialized nations, did not alter its 2008 forecast for oil demand despite growing expectations of a US recession.

"Supply and demand fundamentals now remain unchanged," Shum said.

Oil prices are elevated but have shed almost 10 dollars since striking a record high in New York of 100.09 dollars per barrel earlier this month.

"There are many bearish elements in the market now, focussing on concerns that the US is slipping into recession," Shum said.

"Economic worries will continue to weigh down the futures market."

Sucden oil analyst Nimit Khamar said earlier that sentiment among market participants "has really dropped as it is looking more and more likely that the US is sliding into recession."

Bush, who ended a Middle East tour Wednesday, voiced hope this week that the Organization of the Petroleum Exporting Countries (OPEC) would increase oil output to combat high prices, after his talks with King Abdullah of Saudi Arabia, the world's top crude producer.

But OPEC Secretary General Abdullah al-Badri said on Wednesday that high oil prices were not caused by a shortage of oil supplies and that other factors were to blame.

Stressing that the organization saw no shortages, he said OPEC would be prepared to increase production if it saw evidence that supply and demand were out of balance.

Shum said it is unlikely OPEC, which is to gather in Vienna on February 1, will change its production targets despite Bush's urgings. He added that the onset of warmer weather in the second quarter of the year will lower prices even more as demand eases.

"It is possible that prices will soften further into the high 80s in the next few weeks" he said.

Posted by MOHAMED SAID at 9:43 PM  

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