Oil prices swing wildly as Dow rally fails

SIOUX FALLS, S.D. (AP) - Oil prices fluctuated throughout the day Monday, tracking closely with the path on Wall Street where an early rally failed to hold.

Light, sweet crude for December delivery rose $1.37 to settle at $62.41 a barrel on the New York Mercantile Exchange Monday, but swung as low as $59.10 at one point.

The weakening in the U.S. dollar, partially driven by the $586 billion Chinese stimulus package, may be pushing investors to buy crude, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"We still have this connection between the oil market, the equity markets and the currency markets," Ritterbusch said.

Crude is bought and sold in dollars, and when the dollar falls against foreign currencies, investors often sell the U.S. currency and buy oil.

Oil prices are also experiencing some spillover from the equity markets, in which any significant rise "conjures up images of a softer economic landing," Ritterbusch said.

The Dow Jones industrial average was up more than 215 points earlier Monday before reversing course to fall 64.43 points to 8,879.38 by afternoon.

China's announcement lifted Asian stock markets, as the Shanghai Composite Index surged 7.3 percent, Japan's benchmark Nikkei 225 index rose 5.8 percent and Hong Kong's Hang Seng index gained 4.8 percent.

But crude prices fell in midday trading with U.S. investors paying close attention to a failed rally on Wall Street.

"What we know about demand in China is pretty anecdotal ... we don't really know what's going on," said Ritterbusch. "But it feels like demand for oil has slipped much more than people anticipated. An economic stimulus package did not increase demand in the U.S., nor did it offer a lot of support to the stock market, which is what people are watching now."

Oil prices have fallen about 56 percent since reaching a record $147.27 in mid-July, and that's provided some good news for U.S. motorists.

Prices at the pump fell 1.9 cents to $2.24, down $1.05 in the past month, according to auto club AAA, the Oil Price Information Service and Wright Express.

In Tulsa, Okla., at least one station was selling regular gasoline for $1.79 and there were a handful of states where the average price of gasoline fell below $2.

The disconnect to OPEC production continued, with waning demand taking precedent over how much crude is produced.

OPEC pumped an average 32.3 million barrels per day of crude oil in October, a 210,000 barrel-per-day decreased from September according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Organization of Petroleum Exporting Countries could further reduce oil output if a decision last month to slash production doesn't bolster plummeting oil prices, the group's president Chakib Khelil said Saturday.

Khelil, who is also Algeria's energy minister, said OPEC seeks prices between $70 and $90 per barrel.

"If we go toward $55, I expect OPEC to call an emergency meeting and announce another cut," Chu said. "The market expects them to cut again in December at the latest."

Ritterbusch said he expects OPEC to proceed with its announced production cuts but he expects compliance to be around 65 percent, "so that takes some of the bullish impact out of it."

Various oil ministers in the cartel will continue to chat up the possibility of additional production cuts, but the market should shrug them off as recent price drops are more about demand deterioration than supply-side issues, Ritterbusch said.

In the long-term, rising demand in the developing world will likely push prices higher, the International Energy Agency said last week.

According to a summary of the agency's World Energy Outlook report due to be published in full this week, the IEA has hiked its forecast for the price of a barrel of oil in 2030 to just over $200 in nominal terms, compared to last year's estimate of $108 a barrel.

In other Nymex trading, heating oil futures rose 2.7 cents to settle at $2 a gallon, while gasoline prices gained 1.73 cents to settle at $1.367 a gallon. Natural gas for December delivery jumped 39 cents to settle at $7.24 per 1,000 cubic feet.

In London, December Brent crude rose $1.73 to settle at $59.08 a barrel on the ICE Futures exchange.

(Copyright 2008 by The Associated Press.  All Rights Reserved.)