By Kishori Krishnan Exclusive To Crude Investing News

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Oil prices vaulted 9 per cent in New York Thursday, in tandem with a powerful stocks rally, as investors cheered G20 agreements to combat the global downturn and an easing of US accounting rules.

New York’s main contract, light sweet crude for May delivery settled at $52.64 a barrel.

In London, Brent North Sea crude for delivery in May rocketed $4.31 to close at $52.75 a barrel. “Today the G20 was viewed positively, but also the change in (US) accounting rules and the surge of stock markets,” said Mike Fitzpatrick at MF Global. Investors welcomed decisions by the leaders of the Group of 20 top industrialised and developing countries at a one-day London summit to work together to fight the global recession and improve financial regulation.

Oil prices soared higher on the prospects of a rebound in energy demand. “The market thinks the worse is behind us and that we’re heading toward recovery at the end of the year, early next year,” Fitzpatrick said. Spreading worldwide recession has ravaged energy demand and slashed oil prices from their record peaks of above $147 last July. Investors bought into oil despite some very bearish supply numbers released by the government

On Friday, oil prices settled above $52 a barrel, slightly lower on the day after a report that US unemployment in March soared to a 25-year high. But optimism that the economy will soon turn around curtailed losses. US light crude for May delivery settled at $52.51 a barrel, down 13 cents, but retained most of Thursday’s gain of $4.25 that lifted the contract to $52.64. London Brent crude settled at $53.47 a barrel, up 72 cents.

“The oil market is struggling between hope and reality, much like what you also see in other markets,” said Andy Lebow, a broker at MF Global in New York.

Bidding on

Iraq, which holds the world’s third largest crude reserves, is offering 11 oil and gas fields. Oil India Ltd, (BOM:590005) India’s second largest state-run explorer, and Cairn Energy (LON:CNE) are among the nine companies selected by Iraq as  potential bidders for its second round of auction for oil development rights. OIL along with OAO Rosneft (MCX ROSN) (LI ROSN) of Russia and Japan Oil, Gas and Metals National Corp  were among the nine companies that qualified to bid.

A total of 38 companies sought to take part in the round. Sources said, other companies qualified to bid for the second round include OAO Tatneft (PINK:OAOTF) of Russia, KazMunaiGaz of Kazakhstan, PetroVietnam, Sonangol of Angola and Pakistan Petroleum Ltd. (KAR PPL) Iraq desperately wants to bring back foreign investors after six yeas of conflicts and economic sanctions which destroyed its infrastructure.

The war-ravaged country is aiming to boost oil production to 2.6 million barrels a day by 2009 end, from about 2.4 million bpd currently, and to about 6 million bpd by 2015.

However, Korea National Oil Corp (KNOC) and SK Energy (096770.KS) said they had failed to pass the pre-qualification process for oil exploration rights in Iraq. The firms said they were not informed of the reasons, but some industry sources and a report from Baghdad said it was due to their involvement in Iraq’s autonomous Kurdish region, Reuters reported.

Optimism remains

The positive signals are hard to ignore though. “The equities market is turning around here and the oil market is tracking it. The long side of the (oil) market has seen investments increase in February and March as a lot of participants think that things are changing for the better here,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.

The Obama administration expects the economy to begin turning the corner by the end of the year with job growth coming some months after that, said Christina Romer, head of the White House Council of Economic Advisers.

Phil Flynn of Alaron Trading Corp. said actions taken by central banks in the U.S. and Europe could push the dollar lower, and thus push oil prices higher. Oil is traded in U.S. currency and foreign investors can buy more when the dollar drops.

The volatility in the market is unprecedented for commodities, which Michael Hall, lead publishing analyst at Stifel Nicolaus Research Team, believes will elicit a big spike in price. “I think we’re setting up for a big spike, a big run up in price. I’m not sure it happens overnight, though. Our view is to continue to try and stay somewhat cautious throughout 2009. On the supply side, U.S. producers are laying off rigs by the dozen every week,” he said.

“At the end of the day,” he added, “I’ve always kind of thought that for crude markets, and really most commodity markets, marginal demand is what sets the price. As long as demand is falling, in theory, marginal demand is a lower price than the current price. I think we could still have a decline in demand worldwide in 2009; but by 2010, I think it’ll be back. Long term, I certainly see a very robust environment for crude demand growth.”

There is a favourite statistic that Hall likes to throw arond: “If you look at the average consumption per capita in China and India and average those two countries, it currently runs around 8 per cent of the average per-capita consumption in South Korea and Japan. If you increase that to just 30 per cent of the South Korean and Japanese average by 2020, that increase alone from China and India is enough to provide 2 per cent annual growth in global demand through 2020 in the crude markets, holding everyone else flat. There’s just an immense amount of potential in those markets.”

Company news

A Russian oil company close to the Kremlin said it bought a 21 per cent stake in Hungary’s national energy company, sparking criticism that Moscow was exploiting the financial crisis to reassert itself in Eastern Europe. OAO Surgutneftegaz‘s (MCX:SNGS)  purchase of the stake in MOL Nyrt  (BDP:MOL) could reinforce Western concerns that Russia is trying to parlay its energy resources into greater economic influence in Europe.

Surgut bought the MOL stake from OMV AG, the Austrian oil and gas company that tried to acquire its smaller Hungarian rival in a long, bitter and ultimately unsuccessful battle that began in 2007. OMV said it sold its stake for €1.4 billion (US$1.9 billion).

Surgut, Russia’s fourth-largest oil producer, has long been seen as the most conservative Russian energy company, quietly hoarding a cash pile of around $23 billion rather than investing heavily to boost production or acquiring assets.

Russian Deputy Prime Minister Igor Sechin, who is in charge of Russia’s energy industry, welcomed the deal but denied any government role. “The market itself decided,” he said in an interview. “It’s best of all when there’s no intervention.”

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