Published: Thursday February 26, 2009 MYT 7:50:00 AM
Updated: Thursday February 26, 2009 MYT 12:32:30 PM

Oil above US$42 in Asia Thursday (updated)

SINGAPORE: Oil prices inched higher above $42 a barrel Thursday in Asia as a lower-than-expected U.S. crude inventory increase sparked investor optimism that the collapse in demand may be slowing.

Benchmark crude for April delivery rose 9 cents to $42.59 a barrel by midmorning in Singapore on the New York Mercantile Exchange.

The contract gained $2.54 on Wednesday to settle at $42.50.

The Energy Department's Energy Information Administration said Thursday that crude inventories rose by 700,000 barrels for the week ended Feb. 20.

Analysts expected crude stocks would grow by 2.25 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The department said last week that inventories fell after rising more than 30 million barrels over the previous six weeks, suggesting crude demand, which has been dropping for months, may be stabilizing.

Some investors, however, were skeptical that prices were poised to break out of the $35 to $45 range they've been trading in since December.

Prices have jumped about 20 percent in the last week.

"I'd like to see a couple more weeks of inventory data to see if this really is a trend," said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney.

Prices have fallen about 70 percent since July as the worst recession in decades in developed countries sapped consumer demand.

There was more dismal news on Wednesday as the National Association of Realtors in the U.S. said sales of existing homes unexpectedly plunged in January to the lowest level in nearly 12 years, and luxury retailer Saks Inc. reported a fourth-quarter loss as it slashed prices to hold onto affluent shoppers.

Japan said exports fell 46 percent in January while Taiwan reported earlier this week a 42 percent drop in sales abroad last month.

"The numbers coming out of Japan, Germany, Eastern Europe, U.K., and USA. are all frightening," McGuire said.

"There's no sunshine out there."

McGuire said he expects OPEC to announce a production cut of at least 1 million barrels a day at the group's next meeting on March 15, a move that should help bolster prices.

The Organization of Petroleum Exporting Countries has pledged to reduce output quotas by 4.2 million barrels a day since September.

Leaders of the 13-member cartel have said they would like oil to trade near $70 a barrel.

"These countries really need higher oil prices," McGuire said.

"They're running out of money."

In other Nymex trading, gasoline futures fell 0.17 cent to $1.17 a gallon.

Heating oil rose 0.23 cent to $1.24 a gallon, while natural gas for March delivery was steady at $4.06 per 1,000 cubic feet.

Brent prices rose 30 cents to $44.59 on the ICE Futures exchange in London. - AP

NEW YORK: Oil prices jumped above $42 per barrel Wednesday with a government report showing demand for gasoline is on the rise and crude inventories are not growing as fast as was thought.

Light, sweet crude for April delivery gained $2.54 to settle at $42.50 on the New York Mercantile Exchange.

Phil Flynn, an analyst at Alaron Trading Corp., said a drop in retail gas prices, combined with the Energy Department report that showed demand is rising, had traders pumping money into energy stocks.

Gasoline futures soared 8 percent.

Drivers "like a bargain, and when they see those prices go down, they'll fill up," Flynn said.

"Consumers are spending more on gasoline."

But Geoff Sundstrom, a fuel price analyst for auto club AAA, cautioned that it's too soon to say whether U.S. motorists have returned to their old driving habits.

"I'd love to be more optimistic," Sundstrom said.

"But we don't have enough information to say that Americans are getting out in large numbers."

There is too much economic data rolling out each day that suggests the U.S. economy is far from recovering, he said.

For example, the National Association of Realtors said Wednesday that sales of existing homes unexpectedly plunged in January to the lowest level in nearly 12 years.

And luxury retailer Saks Inc. also reported a fourth-quarter loss as it slashed prices to hold onto affluent shoppers.

Bankrupt telecom equipment company Nortel Networks Corp. also said it would slash 3,200 jobs over the next several months.

The cuts come on top of a previously announced reduction of 1,800 jobs.

The Energy Department's Energy Information Administration report said U.S. gasoline inventories dropped almost 2 percent for the week ended Feb. 20.

Gasoline production also increased last week, averaging 8.9 million barrels per day as refiners take advantage of a market that's awash in cheap crude, analyst Stephen Schork said.

"For the first time in a year they can make money manufacturing gasoline," he said.

Gas prices have been falling for almost two weeks, dropping another penny overnight to a national average of $1.891 a gallon (50 cents a liter), according to auto club AAA, the Oil Price Information Service and Wright Express.

Gas prices are $1.251 a gallon less than a year ago.

The EIA report said that gasoline demand was up 1.7 percent, compared with the same period last year to an average of 9 million barrels per day.

Gasoline inventories slipped by 3.4 million barrels, or 1.6 percent, to 215.3 million barrels, which is 7.6 percent below year-ago levels.

That sent gas future rocketing, which could check any further declines within weeks, depending on production levels of refiners.

But most refiners are undergoing seasonal maintenance, so production levels are lower than normal.

The government report said that crude inventories rose by 700,000 barrels to 351.3 million barrels.

Analysts expected crude stocks would grow by 2.25 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Oil producers have been unable to cut production fast enough in the global downturn and U.S. storage capacity is near its limit.

A cut of 4.2 million barrels a day by the Organization of Petroleum Exporting Countries has not done much to bolster prices.

OPEC's leaders, who have said recently that they would like prices to rise to $70 a barrel, have said another cut is likely when they meet March 15 in Vienna, Austria.

Mike Zarembski, a senior commodity analyst at brokerage OptionsXpress Inc. said oil traders are heartened by reports that 80 to 90 percent of OPEC members were complying with production cuts.

"For the cartel, that's quite unbelievable," Zarembski said.

"There were some expectations that some of those members would sneak in a few extra barrels to sell. But maybe OPEC is serious about doing something about low prices."

In other Nymex trading, gasoline futures gained 8.3 cents to settle at $1.1667 a gallon.

Heating oil rose 2.95 cents to settle at $1.2377 a gallon, while natural gas for March delivery slid 18 cents to settle at $4.056 per 1,000 cubic feet.

Brent prices rose $1.79 to settle at $44.29 a barrel on the ICE Futures exchange in London.

Meanwhile Venezuela is prepared to support a cut in oil production within OPEC in an attempt to boost world crude prices, the country's finance minister said Wednesday.

Venezuela and other nations "will propose new cuts if necessary" at next month's meeting of the Organization of the Petroleum Exporting Countries, Finance Minister Ali Rodriguez said in an interview with the Venezuelan television station Televen.

He said the decision will be made according to what the OPEC's monitoring committee reports on oil markets.

Venezuela, a major oil exporter, is one of the OPEC members that has most strongly supported cutting output to face the plunge in prices.

Oil accounts for 94 percent of Venezuela's exports and funds nearly half the socialist government's budget.

Nevertheless, Rodriguez said Venezuela is in a "better condition" to cope with the global economic crisis than other countries in the region.

"If prices stay where they are, I'd say we wouldn't have to make big sacrifices this year," Rodriguez said.

"But if this lasts for two or three years, something that's possible, Venezuela could face difficulties."

Venezuela's government has announced plans to trim public spending, but President Hugo Chavez guarantees its social programs for the poor will remain intact.

Prices for heavy Venezuelan crude finished last week at an average of $36 a barrel - far below the $60-a-barrel estimate on which budget calculations were based.

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