Oil jumped by more than 7 percent to over $54 per barrel on Wednesday as the US stock markets rallied and giant energy consumer China cut interest rates. The gain came despite bearish US government inventory data, which showed an unexpectedly large rise in crude stocks last week as demand fell again.
US crude rose $3.67 to end at $54.44 a barrel and London Brent crude rose $3.57 to settle at $53.92. Oil has fallen by almost $100 a barrel since hitting a peak above $147 a barrel in July as the global credit crunch dented demand in large consumer nations.
US stocks rose on Wednesday as investors sought down-trodden shares in the technology sector and hopes were renewed for a possible bailout of General Motors, with the Nasdaq gaining over 3 percent in afternoon trade. "The stock market is trading higher, which is giving the few people who are in on this holiday week reason to push the (oil) market up," said Mark Waggoner, president of Excel Futures in California.
The United States was met with another carriage of gloomy economic data on Wednesday, with the latest Commerce Department report showing that US consumers cut spending during October at the steepest rate in more than seven years. US government data showed crude oil inventories rose 7.3 million barrels last week, compared with analysts' forecast of an 800,000-barrel increase as demand continued to slow.
US September oil demand fell by 12.8 percent versus year ago levels, to its lowest level in 12 years, according to EIA data. Oil rose in early activity after China cut interest rates, boosting hopes that a prolonged slowdown in the world's fastest growing oil consumer can be avoided.
A Reuters poll of analysts forecast global crude demand will fall slightly in 2008 and 2009. Analysts have also cut back on their price assumptions for next year, according to a separate Reuters poll. US bank Merrill Lynch cut its oil price forecast for 2009 to $50 a barrel from $90 a barrel.
The oil market was also watching an informal meeting of the Organisation of the Petroleum Exporting Countries (Opec) in Cairo on Saturday. Opec ministers will likely debate a deep cut in oil supply amid the downward price spiral but were expected to hold off taking a decision until their policy-setting meeting in mid-December in Algeria.