Sigh of relief for industry as oil prices fall
UK industry breathed a sigh of relief today after oil prices recorded their heaviest fall in a single session since 2001.
Diminishing fears of a supply crunch over winter pushed the cost of a barrel of light, sweet crude oil down from 49 US dollars to 45.47 US dollars.
The fall was welcomed by traders around the world with the Dow Jones Industrial Average rising more than 160 points last night and Japan’s Nikkei index gaining 2%.
The FTSE 100 Index added 22 points but saw its progress limited by a 2% fall in the value of oil giant BP, its largest member by market value. British Airways, which has been hit hard by rising fuel costs, rose 3%.
The joy of exporters was tempered by the pound continuing to strengthen against the greenback, peaking at 1.9443 US dollars to extend the 12-year high set yesterday.
The fall in oil prices stemmed from a report by the US Energy Department that US crude stocks increased by 800,000 barrels last week – double the level expected by analysts.
Heating oil inventories also improved following warm weather in north-eastern states of America that led to lower demand for fuel by households.
But traders cautioned that the fall in oil prices could be reversed if there was a very cold snap in North America or serious supply disruptions in other parts of the world.
At the same time, oil cartel Opec may decide to scale back oil output when it meets on December 10 to defend prices.
Colin Smith, analyst at Credit Suisse First Boston, said: “If anything, the sharp fall in crude prices may harden up Opec attitudes to over-production.”
Opec has responded to the rise in oil prices in past months by lifting output beyond its quota to meet demand, particularly from fast-growing economies such as China and India.
Barclays analyst Kevin Norrish expected Opec to act cautiously as the northern hemisphere had yet to move into the period of peak demand for winter fuel.
But the cartel was likely to flag a string of concerns such as slowing global growth and the impact of a weak dollar on its revenues, he said.
“They can test the water and ratchet production back towards quota without having to make a big song and dance about it,” Mr Norrish said.
