Oil bounces back from 3-1/2 year low

Enlarge Photo
(Reuters)

By Annika Breidthardt

SINGAPORE (Reuters) - Oil rebounded above $50 a barrel from an early 3-1/2-year trough on Friday, tracking Asian equities that bounced back on rumors that China may cut interest rates later in the day.

Still, its over 11 percent fall this week took oil close to a $100 drop from its July record high and set it on course for the steepest weekly decline since the week of October 6.

U.S. light crude for January delivery rose $1.08 to $50.50 a barrel at 0756 GMT, its first increase after five straight sessions of losses. Earlier it fell to $48.25, the lowest in 3- years.

London Brent crude gained 1.14 cents to $49.22 a barrel.

Asian stock markets bounced from a five-year low touched earlier on Friday as a variety of rumors such as China cutting interest rates later in the day prompted investors to cover short positions before the weekend.

Earlier, Asian stocks had plummeted, tracking U.S. stocks that hit their lowest in a decade the previous session as the fate of the country's major car makers continued to hang in the balance.

"The economy is pulling everything down like a black hole," said Anthony Nunan, risk management executive at Tokyo-based Mitsubishi Corp. "Until the economy stabilizes, it will be hard for oil to put in a bottom."

Oil has lost two-thirds of its value in just under four months since peaking above $147 in July as the financial crisis grips economies around the globe and limits demand for fuel.

Reflecting the sharp reversal in oil's fortunes, Goldman Sachs, which in May had been talking of a $200 a barrel superspike, on Thursday again cut its 2009 forecast for U.S. crude oil to $80 a barrel from $86.

As demand tumbles, oil companies plan to store millions of barrels of crude in the hope economics will improve.

Shipping brokers said U.S. oil trader Koch and Royal Dutch Shell had booked supertankers capable of storing 10 million barrels of crude, more than top exporter Saudi Arabia produces in a day.

The further falls in oil prices brought more Organization of the Petroleum Exporting Countries members out in support of further output cuts.

Libya's top oil official said the cartel may decide to reduce supply further at its informal meeting in Cairo next week if it finds members have implemented a previous decision to lower output.

The comments followed remarks from other OPEC members, including Kuwait, Iran and Venezuela, raising the possibility of a further cut in supply to prop up oil prices.

OPEC agreed in October to cut output by 1.5 million barrels per day, about 5 percent, from November 1, but the move has failed to stem the decline in oil prices.

(Editing by Ben Tan)