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Crude nudges higher after Bernanke says the stimulus package a "significant boost"

CRUDE futures halted a weeklong price slide yesterday, nudging higher after Federal Reserve Chairman Ben Bernanke said the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking US economy.

After rebounding to a high of US$50.47 one week ago, crude has fallen 30 percent as worries about the weakening global economy overshadow Mideast tensions, OPEC production cuts, the Russian-Ukraine natural gas dispute and a winter season expected to deliver the coldest weather in a decade.

Light, sweet crude for February delivery rose 19 cents to settle at US$37.78 a barrel on the New York Mercantile Exchange after falling to US$36.10 earlier, a new low for the year.

In London, February Brent crude rose US$1.92 to settle at US$44.83 a barrel on the ICE Futures exchange.

Oil prices rose in early trading after Federal Reserve Chairman Ben Bernanke said the US$700 billion financial rescue program, part of the reason the deficit is ballooning, was needed as part of a broader, multi-pronged government response to combat the worst financial crisis to hit the US and the global economy since the 1930s.

"The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity," Bernanke said.

The comments provided a jolt to traders, said Phil Flynn at Alaron Trading Corp.

"Let's face it, we needed a vote of confidence after yesterday," he said after prices fell 8 percent.

Flynn said traders have been hearing nothing but negative news about bad the economy and the upcoming earnings season will be. Traders interpreted Bernanke as saying the economy is showing signs of stabilizing.

"That's the best news an energy trader has gotten all week," he said.

Oil reached as high as US$39.50 yesterday, but, as was the case a week ago, unable to sustain the higher levels.

"I think the market got a little bit ahead of itself," analyst Stephen Schork said.

The Commerce Department said yesterday that the trade deficit plunged to the lowest level in five years as the deepening recession slashed demand for oil.

Imports fell by 12 percent to US$183.2 billion, the lowest level in 2 1/2 years. The huge decline was led by the largest-ever drop in crude, reflecting a record fall in the average price of a barrel of oil. Total petroleum imports were down 36.5 percent to US$23.6 billion. Analysts predicted further declines in the months ahead, since oil is now trading more than US$100 below its all-time high of US$147 per barrel set in July.

At the same time, the Treasury Department reported the federal government has run up a record deficit in just the first three months of the current budget year.

The deficit struck US$485.2 billion, putting the US on track to surpass US$1 trillion for all of fiscal 2009.

The imbalance from October through December is the highest on record for a first quarter and surpasses the mark for a full budget year of US$454.8 billion set last year.

The short-term energy outlook released yesterday by the Department of Energy said falling demand will likely continue through the year.

"US real gross domestic product (GDP) is expected to decline by 2 percent in 2009, leading to decreases in domestic energy consumption for all major fuels," the department's Energy Information Administration said.

Economic recovery is projected to begin in 2010, according to the government.

That report was offset by new production cuts from Saudi Arabia new figures on Chinese exports that show that they did not fall as much as been expected, Flynn said.

The Chinese government said yesterday that December exports fell 2.8 percent from the year-ago month, after a 2.2 percent decline in November. Exports fell at their fastest rate in a decade.

Saudi Arabia, the world's largest oil exporter, said it will tighten its own belt and will cut production below quotas it agreed to as a member of OPEC.

The Organization of Petroleum Exporting Countries, which supplies 40 percent of the world's crude, has announced production cuts of 4.2 million barrels a day in an effort to stop declining crude prices.

OPEC Secretary General Abdalla Salem El-Badri said on the group's Web site that member countries are complying with the 500,000 barrel-a-day production cut implemented in September and the 2.2 million barrel-a-day production cut implemented last month.

"From the data we have been receiving, there has been an almost 100 percent compliance with the first two cuts, and this is a good sign," he said.

The fact that oil prices have continued to fall is starting to get OPEC concerned again, according to the daily report from Cameron Hanover.

"At this stage, though, OPEC may feel compelled to cut production so severely that any rally would push prices to fresh economy-crippling levels," the report said. "The last thing this economy needs right now is a fresh doubling of oil prices. OPEC does not feel it can let prices get any lower, though."

In other Nymex trading, gasoline futures jumped 4.48 cents to settle at US$1.1489 a gallon. Heating oil advanced 3.17 cents to settle at US$1.5141 a gallon while natural gas for February delivery tumbled 35.8 cents to settle at US$5.184 per 1,000 cubic feet.


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