Oil futures traders work on the floor at the New York Mercantile Exchange, as the price hovered near $50 a barrel in morning trading, in New York on January 19. - Reuters
LONDON, (Reuters):
Oil jumped more than 2 per cent on Friday, holding above the key $50 a barrel level as temperatures fell in the U.S. North-east, the world's top heating fuel market.
U.S. crude <CLc1>rose $1.30 to $51.78 a barrel by 1759 GMT, after ending down $1.76, or 3.4 per cent, at $50.48 on Thursday. London Brent <LCOc1> gained $1.54 to $53.29.
U.S. oil fallen
U.S. oil has fallen nearly 16 per cent since the end of last year and about 34 per cent since record highs of $78.40 struck in July.
After government report showed a 6.8 million barrel rise in U.S. crude stocks on Thursday, U.S. crude fell below $50 for the first time since May 2005 to $49.90 before recovering slightly in late trade.
Friday's recovery was helped by colder weather in the United States after exceptionally mild weather in the North-east in early January sapped demand for heating fuel.
But many analysts predicted the $50 a barrel mark would not hold for long.
"The bears should now be firmly back in charge. We would not therefore be surprised to see rallies sold into more aggressively here, and the series of lower lows will gradually take us below the $50 level," Edward Meir of Man Energy said in his daily report.
"It has been a wild ride lower thus far and the bottom still seems elusive."
Technical analysts, who predict future price direction from studying charts, said should there be a convincing break below $50, the next key level would be around $44.50 - the 50 per cent retracement of the rally from the December 1998 low of $10.35 to last July's record.
PIVOTAL POINT
Some commentators have said a concentration of 'put', or sell, options around the $50 and $45 a barrel level could trigger deep selling.
Countering that, producers, who have been relying on a rising market to protect their revenues, have started to buy oil futures to hedge their output and investment projects against further price declines.
Other analysts say the $50 barrier may be further away than it appears at first sight.
The front-month February U.S. contract, which is expiring on Tuesday, is relatively close to $50. But March crude, which will become the front month, is trading at $53.
In addition, long-term investors, who view commodities as an important diversifier against falls in other asset classes, increasingly see an opportunity to buy.
"There had been concern that when energy prices were very high, there appeared to be more downside risk than upside," said Richard Cooper of Mercer consultancy.
The Organization of the Petroleum Exporting Countries has agreed on two output cuts totaling 1.7 million barrels per day (bpd), but so far has failed to implement them fully.
In its monthly report, the producer group said the 10 OPEC members involved in supply curbs had pumped 26.8 million bpd in December, 111,000 bpd less than in November, but still above a 26.3 million bpd target.
