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Oil eases $1 after historic one-day surge

Singapore, September 23, 2008

Oil paused for breath and shed $1 on Tuesday as investors, still unsure about the impact of the US bailout plan, booked profits after a historic one-day rise in prices of nearly 16 percent in the previous session.

Although prices surged a day earlier on hopes the rescue plan would improve the outlook for energy demand, traders said investors were still struggling to find answers about the cost to finance the $700 billion package to shore up the financial system and ease the deepening credit crisis.

US light crude for November delivery was down 42 cents at $108.95 a barrel by 0302 GMT, after shedding as much as $1 to $108.37 in volatile trading. London Brent crude was 29 cents lower at $105.75.

The November contract rose nearly $7 on Monday, while the expired October contract, which traded $25 higher, settled up 16 percent at $120.92 -- marking the biggest one-day gain on record.

'I think traders are taking profits after the rally in both  October and November contracts last night. The market will probably wait and see what's going to happen to the US rescue plan before making their next moves,' said Gerard Rigby, an independent energy consultant based in Sydney.

'There are still a lot of question marks on the bailout plan and the longer it takes to be approved, the more doubts the market will have.'    

Since hitting record highs above $147 a barrel in mid-July, oil has tumbled on mounting evidence that high energy costs and economic woes were undercutting global fuel demand.

Oil demand in the United States, the world's biggest consumer, is running about 4 percent below last year, according to the latest government data.

In a research report titled 'The world did not run out of crude oil on October expiry', BNP Paribas' Harry Tchilinguirian said the prices achieved in the October contract were not sustainable in the current economic context.

But news of Saudi Arabia trimming its supply to oil majors, ongoing unrest in Nigeria, and higher-than-expected Chinese imports would support oil prices, Barclays Capital said in a research note.

Top oil exporter Saudi Arabia has trimmed oil supplies to international majors and U.S. refiners since the start of September, industry sources said on Monday.

The slow recovery of the US oil sector after Hurricane Ike, which caused the biggest disruption to the nation's energy supplies since 2005, could also keep prices firm, analysts said.

Nearly 80 percent of oil production in the US Gulf of Mexico, home to a quarter of all US oil output, remained shut, along with seven refineries.

Ecuador, Opec's smallest member, said on Monday world oil prices were expected to remain above $100 a barrel in 2009 and the oil market would probably stabilise after weeks of volatility.

Ecuadorean Oil Minister Galo Chiriboga said he saw no need for an extraordinary Opec meeting to review output levels as he expected strong demand in the northern hemisphere due to the upcoming winter and growing energy demand in Asia. - Reuters




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