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Published: Wednesday August 5, 2009 MYT 8:03:00 AM
Updated: Wednesday August 5, 2009 MYT 2:25:09 PM

Oil stalls above US$71 in Asia trade Wednesday(update)


SINGAPORE: Oil prices hovered above US$71 a barrel Wednesday in Asia as mixed economic news from the U.S. stalled a weeklong rally.

Benchmark crude for September delivery was up 4 cents to $71.46 a barrel by midday Singapore time in electronic trading on the New York Mercantile Exchange.

On Tuesday, the contract fell 16 cents to settle at $71.42.

Crude prices have jumped from below $63 a barrel last week on investor optimism the U.S. economy, the world's biggest oil consumer, is recovering from a severe recession.

On Tuesday, the Commerce Department said consumer spending rose 0.4 percent in June. But personal incomes dropped by 1.3 percent, the steepest slide in four years. "Consumer spending is still in the dog house," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore.

"We're living off government stimulus, which is going to end not too long from now."

U.S. crude inventories unexpected fell last week, a sign demand could be rebounding. Inventories dropped 1.5 million barrels last week, the American Petroleum Institute said late Tuesday.

Analysts expected the API numbers to gain 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline supplies rose 2.1 million barrels.

Investors will be watching for inventory data from the Energy Department's Energy Information Administration on Wednesday for more signs about crude demand.

The API numbers are reported by refiners voluntarily while the EIA figures are mandatory.

Crude will likely trade between $65 and $85 the rest of the year, Kornafel said.

"I think all the optimism is somewhat misplaced," Kornafel said.

"People don't understand that things can get bad and stay bad for more than two years."

In other Nymex trading, gasoline for August delivery was steady at $2.05 a gallon and heating oil rose 1.06 cents to $1.91.

Natural gas for August delivery fell 7.6 cents to $3.93 per 1,000 cubic feet.

In London, Brent prices rose 23 cents to $74.51 a barrel on the ICE Futures exchange. - AP

Earlier report

Oil rally stalls in face of better economic data

NEW YORK: Oil prices dipped Tuesday, yet are now well above levels just one month ago as a string of economic reports provides a brighter outlook for the global economy.

Benchmark crude for September delivery fell 16 cents to settle at $71.42 a barrel on the New York Mercantile Exchange.

Crude prices had risen for four straight days before Tuesday.

A barrel of crude cost around $64 a month ago.

The housing market continued to show signs of life with pending U.S. home sales rising in June for the fifth straight month, according to the National Association of Realtors.

The last time there were five straight monthly gains was July 2003.

At the same time, the Commerce Department said consumers boosted their spending 0.4 percent in June, slightly ahead of analysts' estimates, even though personal income fell 1.3 percent, the steepest drop in more than four years.

In what may have been the depth of the recession, energy prices plunged as businesses and consumers slashed spending.

That trend began to ease as early as February partly because a barrel of crude could be had for around $40, a third of the price last summer, and partly on optimism about an economic rebound.

The weak dollar is bringing even more money into the market.

Because crude is bought and sold in dollars, it effectively becomes cheaper when the U.S. currency falls.

That influx of optimism, and money, has helped push gasoline prices higher for 14 straight days, a month after prices peaked for the summer.

Energy experts believe that the fundamentals of supply and demand do not support crude prices near $70 per barrel.

There is some trepidation about rapidly climbing prices, which some fear may hinder any economic recovery.

The chief economist of the International Energy Agency told the Financial Times that prices higher than $70 could extend the recession.

"If we go one step further, if we see prices go much higher than that, we may see it slow down and strangle economic recovery," he said of oil prices on Friday, when the European benchmark was around $70.

There is still plenty of downward pressure on energy prices, and not only because the U.S. driving season is wrapping up.

Colorado State University researcher William Gray slightly downgraded his forecast for the 2009 Atlantic hurricane season to 10 named storms, including four hurricanes, two of them major.

In June, his team forecast 11 named storms, including five hurricanes, two of them major.

Prices spiked last summer when hurricanes Gustav and Ike slammed into the nation's energy complex in the Gulf of Mexico.

The hurricane season runs until Nov. 30.

Also, the U.S. government will release its weekly report Wednesday on crude supplies. Analysts are expecting that the amount of crude placed in storage, with refiners pulling back on production, will increase for the second straight week.

In other Nymex trading, gasoline for September delivery lost 1.26 cents to settle at $2.0567 a gallon and heating oil rose 3.01 cents to settle at $1.9014 a gallon.

Natural gas for September delivery fell 3 cents to settle at $4.001 per 1,000 cubic feet.

In London, Brent prices added 73 cents to settle at $74.28 a barrel on the ICE Futures exchange. - AP


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