OIL FUTURES: Crude Extends Gains But Fundamentals Still Weak
11/02/2009 08:20AM
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LONDON (Dow Jones)--Crude futures extended their gains in Europe following a rebound in equities markets and a weak dollar, but concerns over weak fundamentals of the global oil market continued to weigh on sentiment.
European stocks mostly rose after sharp declines Friday. Meanwhile, the Purchasing Managers Index for the euro zone's factory sector rose to 50.7 in October from 49.3 in September, the first increase in the index since May 2008, which also helped support stock prices.
At 1130 GMT, the front-month December contract on London's ICE futures exchange was up $1.27 at $76.47 a barrel.
The front-month December light, sweet, crude contract on the New York Mercantile Exchange was trading $1.08 higher at $78.08 a barrel.
The ICE's gasoil contract for November delivery was up $2.00 at $626.75 a metric ton, while Nymex gasoline for December delivery was up 226 points at 198.21 cents a gallon.
The oil market mainly followed economic news, said Christopher Barret, global oil analyst at Calyon in London. "I don't think there is anything special right now in the market to push oil up $1," he said.
Fundamentals of the oil market remained weak. Iraq resumed the flow of Kirkuk crude oil Monday via its northern pipeline to Turkey's Ceyhan port after a week-long closure following an attack on the export line.
Iraq usually pumps 18,000 to 20,000 barrels an hour through the pipeline.
Meanwhile, analysts paid more attention to high oil inventories and the low compliance rate of members of the Organization of Petroleum Exporting Countries.
OPEC's compliance rate with its current output ceiling dropped by 4 percentage points on the month to 60% in October, compared with a high of about 80% in April, said JBC Energy, a Vienna-based consultancy.
"In absolute volumes production has increased by a total of around 850,000 [barrels a day] over the course of the last six months," they said.
By factoring in higher Iraqi production, which isn't bound to output restrictions, this figure would increase to about 950,000 barrels a day, they added.
Given the still gloomy outlook for fundamentals of the oil market, many analysts say crude futures will face more downward pressure.
"We are not yet out of the woods and the possibility of a significant short-term correction in prices remains in place," analysts at U.K. consultancy KBC Market Services said in a research note.
-By Sherry Su, Dow Jones Newswires; +44(0)20-7842-9329; sherry.su@dowjones.com