Oil falls after US taps reserves, markets bounce back

Oil falls after US taps reserves, markets bounce back
EEB & REUTERS

LONDON/MUMBAI, Sept 25: Oil prices slumped more than a dollar on Monday, adding to a $1.50 drop on Friday, after a US Decision to tap into strategic reserves interrupted this year's blistering price rally. The fall in oil prices boosted stock markets and currencies across the world with the Bombay Stock Exchange benchmark Sensex bouncing back by 141 points and the Indian rupee rallying by 17 paise against the US dollar.

Stock markets across the region recovered after Brent blend crude oil futures tumbled $1.20 to $ 30.05 a barrel in early electronic trade -- the lowest level in a month. US oil futures were down $1.46 at $31.22 a barrel. On Friday, US Energy Secretary Bill Richardson announced the release 30 million barrels of crude during October from the 571 million-barrel Strategic Petroleum Reserve (SPR). Expectations of the move had taken $1.48 off the price of Brent just before Friday's close.

In India, stocks led by infotech counters bounced back on the BSE following renewed buying by investors on expectations of marginal price rise in petro products and reports of decline in crude oil prices in the international market. Sensex closed at 4173.48 as against last Friday's close of 4032.37, a steep upsurge of 141.11 points or 3.50 per cent.

Japan's Nikkei 225 stock average finished up 1.1 per cent at 15,992.90. Hong Kong's Hang Seng Index rallied to finish 5.58 per cent higher to 15,428.95, but sentiment remained cautions and volumes thin. Korea was a big winner after memory chip giant Samsung Electronics led a blue-chip rebound and the KOSPI index ended 5.67 per cent higher at 584.63.

After the declining trend which led to a 530-point fall in Sensex last week, share prices on Indian markets opened distinctly firm on the government's decision to defer an increase in the price of petroleum products until the month end with a three-pronged strategy in hand to bring down the oil pool deficit. ``With the fall in world oil prices, I hope the Indian government will defer the proposed hike in petroleum products,'' said a BSE dealer.

Infotech stocks were the first to turn the corner on fresh buying. Of the specified scrips, 115 including Silverline, SSI Ltd and Wipro closed at the 16 per cent upper circuit band. Others like Infosys, Zee and Satyam were also strong.

On the other hand, the Indian rupee staged a smart rally against the US dollar and closed 17 paise higher at 46.01/03 on heavy dollar supply as the reverse trend in international oils prices boosted the sentiment at the interbank foreign exchange (forex) market today. According to dealers, the market witnessed heavy dollar supply by exporters following the sharp fall in oil prices in the international market. Meanwhile, the US announcement came a day after Vice President Al Gore had suggested tapping the reserves for only the second time since they were established in the mid-1970s. Critics accused the White House of trying to help Gore win the November 7 presidential election, but the Clinton administration said the release was necessary to avoid a winter shortage of heating oil stockpiles, now near 24-year lows.

Brent crude is now down 14 per cent from its decade high $ 34.98 a barrel set just one week ago while US futures have tumbled 17 per cent from a post-Gulf War peak of $37.80. The SPR release is the equivalent of one million bpd during October, equal to five percent of the 20 million bpd in crude and refined products the United States consumes each day.

US Energy Secretary Bill Richardson left open the possibility of dipping into emergency stockpiles again. "After 30 days, after 30 million barrels, the president will make an assessment and see where we are," Richardson said on Sunday.

"While the release of SPR oil was a foregone conclusion, no one expected it to be of this magnitude before a review took place," brokers GNI Research said in a report, adding it "could well serve to push prices down to more moderate levels."

But with US refineries already running near full stretch trying to replenish low heating oil and diesel inventories, the extra SPR crude might only have a limited impact. "The impact... is much more psychological to the market than anything else," said Ken Miller of Purvin & Gertz in Houston.

OPEC President Ali Rodriguez called the SPR release a positive move that should reduce prices. "The increase of one million bpd from the US reserve, with the extra supply due on the market in October, will reduce speculation and we think that is positive," said Rodriguez, who is also Venezuela's oil Minister.

The Organisation of the Petroleum Exporting Countries agreed in September to increase production, the cartel's third hike in seven months, in an attempt to keep prices between $22 and $28 a barrel. US President Bill Clinton's authorisation of the release came ahead of an OPEC heads-of-state summit in Venezuela on Wednesday and Thursday.