NEW YORK-Oil prices slid to US$91 per barrel in light trading yesterday, the first day after the Christmas break, as traders focused on efforts in china to to ease inflation. Benchmark oil for February delivery fell 51 cents to settle at US$91 per barrel on the New York Mercantile Exchange. Analysts blamed the drop on China's decision over the weekend to raise its benchmark lending rate. Higher interest rates will not only cool off China's economy, they'll also cut the country's appetite for energy.
Still, prices will head higher in the new year, analysts said. Investment banks including JP Morgan and Morgan Stanley see a return to US$100-per-barrel oil in 2011. Prices might be down this week, but "the market is really getting limber for a sprint come January," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. World oil demand is still expected to increase next year. And OPEC ministers signaled over the weekend that they wouldn't raise production. The Organization of Petroleum Exporting Countries, which accounts for 40 per cent of global crude production, influences oil prices through production quotas. While higher prices mean stronger revenue, OPEC is also aware that an overheated oil market would stunt economic growth and eventually cut energy demand.
Many expected OPEC to increase production to eas price increases. But Arab OPEC members said at a meeting in Cairo over the weekend that they wouldn't even meet until June. Oil prices are increasing even with US demand far below the boom markets of just a few years ago. Consumption has increased over the past year, but it isn't close to what it was in the eight years that preceded the recession, according to government figures released this month. Cameron Hanover analyst Peter Beutel said that it is Wall Street-not American motorists-pushing oil prices higher as investors snap up thousands of futures contracts.
"As long as they have signs the economy is recovering, they are happy buying oil," Beutel said. "As we look ahead, we see nothing that can turn prices back down except another recession." The most visible sign for most consumers that oil is getting more expensive is the corner gas station, where a gallon of gas is back above US$3. The national average added less than a penny overnight to US$3.042 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 18.3 cents higher than it was a month ago and 44.2 cents more than it was last year.
But in states from California to Connecticut, US$3-per-gallon gas is fading fast in the rearview mirror.
In trading for January contracts, heating oil gave up 2.42 cents to settle at US$2.5166 a gallon, gasoline futures fell 2.17 cents to settle at US$2.4209 a gallon and natural gas added 2.9 cents to settle at US$4.112 per 1,000 cubic feet. In London, Brent crude added 8 cents to settle at US$93.85 a barrel on the ICE Futures exchange. (AP)