Oil stems slide after hitting 18-month low
Crude rebounds after reports say OPEC could keep prices in the $60s; fringe worries about Russia-Belarus abound.
NEW YORK (CNNMoney.com) -- Oil prices rebounded Thursday, recovering from 18-month lows after reports said talks between Russia and Belarus over a major pipeline closure fell through. In addition, a report said OPEC cuts could leave crude trading in the $60s for the rest of the year.
U.S. light crude for February delivery settled down 45 cents at $55.64 a barrel on the New York Mercantile Exchange, after falling below $54 a barrel in overnight trade.
Talks between Russia and Belarus failed to reopen a major pipeline that delivers up to 1.4 million barrels a day to key markets in Poland and Germany, Reuters reported.
Up until the collapse in talks, the pipeline closure had not moved prices much.
Analysts said the recent OPEC cuts gave the world some spare capacity to deal with the shutdown and high inventory levels could also be tapped if shipments did not resume soon.
"It's not as detrimental because we're able to offset this temporary disruption," Brian Hicks, co-manager of the Global Resources Fund at U.S. Global Investors in San Antonio, said before the talks collapsed. "That's why we're not seeing a strong negative response right now."
Supplies of Russian crude, which flowed from Western Siberia through Belarus and into Poland and Germany via the Druzhba (Friendship) Pipeline, were halted over the weekend following a dispute with Belarus.
Reports said Russia wanted to charge Belarus, formerly part of the Soviet Union, market rates for natural gas, which would have doubled its price.
Belarus balked, and then levied a surcharge on Russian oil passing through the pipeline. Russia then accused Belarus of siphoning off oil from the pipeline in lieu of collecting the tax.
The incident, which echoes a similar one last year involving Ukraine that resulted in Russian gas not reaching key European markets, raised eyebrows in the West.
Russia has been accused of heavy- handed dealings of late to get its way in energy deals, notably by seizing the assets of former oil giant Yukos after its boss became critical of the Kremlin. Russia also subjected Royal Dutch Shell and other foreign companies to stringent environmental regulations in the Sakhalin II energy project in the north Pacific. Shell recently sold its controlling interest in the project to a Russian company.
But Fadel Gheit, an energy analyst with Oppenheimer, said Belarus is more to blame in this recent spat with Russia.
"They just cannot blackmail Russia and Western Europe," he said. "Who said they are entitled to a discount?"
Oil prices hit a low of $53.88 in overnight trade, their lowest since June 2005, adding to a slide that has shaved nearly 9 percent off crude prices since the start of the year.
"The momentum is really piling on now," Stephen Schork, publisher of the industry newsletter the Schork Report, said earlier in the day. "There is just nothing to support this market until we get to the $50 range."
Schork blamed much of the decline on investment money that was turning from betting crude prices would rise to betting they would fall, known as moving from long to short.
He said data at the end of December showed investment money - generally defined as traders who would not take delivery of crude oil, like an investment bank - was long in the crude market by 20 million barrels. The most recent date, released Monday, showed speculators long by just 3 million barrels.
"People are beginning to see that oil prices have been high for quite some time," said Gheit.
Gheit said rising crude stocks, slowing global demand, a drop in demand growth and new production from places like Canada, West Africa and Azerbaijan were contributing to oil's sell off.