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19Jan09


Oil falls towards $34 on gas deal, Gaza ceasefire


Oil fell more than $2 toward $34 a barrel on Monday after Russia and Ukraine signed a 10-year gas deal clearing the way for the resumption of supplies to a freezing Europe.

Implementation of a ceasefire between Israel and Hamas in Gaza also eased supply concerns as the market remained under pressure from expectations that the weakening global economy would erode oil demand.

"Right now the economy is dominating," said Harry Tchilinguirian, analyst at BNP Paribas. "The market is very volatile and the signs are that demand is weakening."

U.S. crude oil futures for February delivery dipped to a low of $33.89, down $2.62, before recovering to trade at $34.53 by 1:00 p.m. EST.

Traders said the February U.S. crude oil futures contract, which expires on Tuesday, also fell because of very high stocks at the delivery point for the U.S. futures contract.

Only just over 3,100 lots were traded on the February U.S. crude contract. The March contract was much more active as more than 31,000 lots changed hands.

London Brent crude for March fell to a low of $43.80, down $2.77, before edging back up to around $44.50.

Gas Flows

The agreement between Russia and Ukraine, which set a final price for 2009 supplies, is expected to lead to the restart of flows of Russian natural gas to Europe via Ukraine within the next 36 hours.

Also easing concern about energy supplies, Israeli forces began to pull out of the Gaza Strip following a tentative truce with Hamas after the three-week war, easing tension in a region which pumps about a third of the world's oil.

Prices came under pressure on Friday after the International Energy Agency, an adviser to industrialized countries, predicted a fall in world oil demand in 2009.

OPEC, the oil exporters' group, has cut production three times since September to try to stem falling prices. It might consider reducing output again, Algeria's oil minister Chakib Khelil said on Saturday.

Oil has collapsed by more than $110 a barrel since reaching a record high of $147.27 a barrel in the summer as the global economic slowdown has eroded demand and consumer spending.

Still, some in the oil market think there is little room for prices to fall much further.

"It looks as if Brent will hold in the current $40-$50 range," said Christopher Bellew, a broker at Bache Commodities. "I do not anticipate new lows."

[Source: Reuters, London, 19Jan09]

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