Oil settled up 6.6 percent to above $43 a barrel on Wednesday as Opec supply cuts outweighed additional evidence that a deepening global slowdown is crushing demand for fuel. US light crude for March delivery settled at $43.55, up $2.71 on its first day as the front month contract. London Brent crude rose $1.40 to $45.02 a barrel.
Opec is fully enforcing its deepest ever oil supply curbs, which should be enough to boost prices, the group's president, Angolan oil minister Botelho de Vasconcelos, told Reuters. Oil has plunged from record highs above $147 a barrel in July as the global economic crisis lowered oil consumption, prompting the Organisation of the Petroleum Exporting Countries (Opec) to agree to a series of output cuts.
But despite the cuts, US oil inventories have been climbing steadily in recent weeks, with crude stocks at the NYMEX delivery point in Cushing, Oklahoma, reaching a record high and putting pressure on US oil prices. "Frankly, we don't know that inventories at Cushing, Oklahoma, are going to just mount to the sky ... at some point, the Opec production cuts are going to rebalance the market," said Tim Evans, energy analyst for Citi Futures Perspective, in New York.
"If the US market is to sustain an ongoing flow of crude oil, it will have to bid at a price level that is competitive with the Brent market," he added. Crude was also supported by the weakness in the US dollar against the euro and the yen. Wednesday's gains were tempered by mounting worries about shrinking global oil demand as an economic slowdown takes hold, dealers said.
The International Monetary Fund is set to sharply cut growth forecasts this month, IMF Managing-Director Dominique Strauss-Kahn said on Wednesday. The world will not return to strong growth for two to three years, Strauss-Kahn said.
A Reuters poll on Wednesday showed industry analysts expected global oil demand to contract by 430,000 barrels per day in 2009, deeper than they had forecast previously, as the economic crisis spreads to the developing world. China, one engine in the recent oil rally, was expected to release fourth-quarter GDP data this week that economists said could show 7.0 percent growth, the slowest pace of expansion in nearly a decade for the world's third-biggest economy.
Another Reuters poll of analysts forecast that crude oil stocks in the United States, the world's top energy consumer, rose by 1.4 million barrels last week. Data will be released on Thursday, a day later than usual, following the US holiday on Monday honouring civil rights leader Martin Luther King Jr.