Oil slips below $36 as inventories rise (almost my $30 option)
Oil slips below $36 as rising US crude inventories fuel demand concerns
Jake Neubacher, Associated Press Writer
Thursday February 12, 2009, 6:45 am EST
VIENNA (AP) -- Surging crude inventories and investor skepticism over the U.S. stimulus package dragged oil prices below $36 per barrel Thursday.
Investors seemed more wary than relieved after U.S. lawmakers finally agreed overnight to a $790 billion stimulus bill designed to pull the economy out of recession.
Light, sweet crude for March delivery fell 53 cents to $35.41 a barrel by midday in Europe on the New York Mercantile Exchange. The contract fell $1.61 overnight to settle at $35.94.
U.S. crude oil inventories have jumped in recent weeks as rising unemployment erodes spending on gasoline.
A weekly report Wednesday from the Energy Information Administration showed that crude inventories jumped by 4.7 million barrels for the week ended Feb. 6, more than an increase of 3.4 million barrels expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.
Including last week's build up, crude inventories have swelled by more than 30 million barrels in the past six weeks.
"Conditions in the West and globally remain quite weak," said Gerard Burg, minerals and energy economist with National Australia Bank in Melbourne. "Given the economic outlook, there's little to drive prices higher."
Forecasters continue to lower their expectations for crude demand. The Paris-based International Energy Agency said Wednesday that global oil demand in 2009 will likely be 84.7 million barrels per day, 570,000 barrels less than the previous estimate.
"It's still a market that's really focused on demand," Burg said. "I think there's potential for conditions to weaken further."
Investors are also skeptical that a Treasury Department plan announced earlier this week to spend more than $1 trillion to help remove banks' soured assets from their books and unclog the credit markets will work.
"The bank plan lacked specifics, and the market is quite concerned that it won't kick start the economy," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore.
Falling prices may eventually trigger a recovery in the medium-term, as producers could reduce supply from high-cost oil fields that have become unprofitable.
"I think the cost of production is going to increasingly become an issue," Burg said. "If it becomes unprofitable, most producers would seek to cut back."
The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, said earlier this week it has completed about 80 percent of 4.2 million barrels per day of output cuts announced since September.
The output cuts have failed to counter surging U.S. crude inventories and weakening demand.
"All of the hand-wringing regarding OPEC compliance press releases aside, U.S. supplies of crude oil (foreign and domestic) continue to build," said energy analyst Stephen Schork in his Thursday report.
"There is no reason to think this trend will not continue."
In other Nymex trading, gasoline futures rose 1 cent to $1.28 a gallon, while heating oil slid 1 cent to $1.31 a gallon. Natural gas for March delivery jumped 3 cents to $4.56 per 1,000 cubic feet.
In London, the March Brent contract rose 22 cents to $44.50 on the ICE Futures exchange.
Associated Press writer Alex Kennedy in Singapore contributed to this report.
AI
