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Crude prices waver below US$50

OIL prices wavered below US$50 yesterday with a number of major U.S. companies reporting larger-than-expected profits, but there was still plenty of evidence suggesting demand for energy will be sluggish at best.

Benchmark crude for June delivery rose 77 cents to settle at US$49.62 a barrel on the New York Mercantile Exchange.

Crude prices have been moving with the stock market, climbing from below US$35 to above US$50 a barrel this year even as unused oil in storage hits 19-year highs. Demand is at the lowest level since after the terrorists attacks in September 2001.

Phil Flynn of Alaron Trading said Federal Reserve policies that have brought down interest rates have weakened the dollar and provided a floor for oil prices. Crude, priced in dollars, becomes cheaper when the U.S. currency falls. He also said that could stimulate demand down the road.

First-quarter profits for oil producers ConocoPhillips and Occidental Petroleum fell 80 percent, the companies reported yesterday, but that wasn't as bad as analysts had expected given that oil costs a third of what it did over the summer. The companies actually reported an increase in production.

Industries that use a lot of energy continue to struggle, despite low energy prices. That does not suggest a rebound for energy prices soon.

Profits for UPS Inc., the world's largest shipping carrier plunged and airlines like US Airways and Alaska Air Group lost money.

The terrible economy, of course, has changed how people spend money and Americans are spending a lot less on gasoline. For millions, it's because many are not driving to work.

New jobless claims rose more than expected last week, while the number of workers continuing to filing claims for unemployment benefits topped 6.1 million.

The Labor Department said yesterday that initial claims for unemployment compensation rose to a seasonally adjusted 640,000, up from a revised 613,000 the previous week. That was slightly above analysts' expectations.

And General Motors Corp. was expected to announce as soon as yesterday that it will temporarily close most of its U.S. factories for up to nine weeks because of growing inventories of unsold vehicles.

The economy has slowed so quickly that natural gas in storage is now 36 percent greater than it was at this time last year. Manufacturers and other sectors that power heavy machinery with natural gas are shutting down and the price has plunged.

The Energy Department's Energy Information Administration said yesterday in its weekly report that natural gas inventories held in underground storage in the lower 48 states rose by 46 billion cubic feet to about 1.74 trillion cubic feet for the week ended Friday. That's 23 percent above the five-year average, according to the government data.

When the price of natural gas and oil plunge as they have, it usually comes with economic turmoil.

Government data released Wednesday showed about 1 billion barrels of oil in storage, including the 717 million barrels of crude in the country's strategic petroleum reserve.

Supplies of crude and petroleum products rose to its highest level, 1.79 billion barrels, since the government began keeping records in 1982, according to trader and analyst Stephen Schork.

And now there are signs that OPEC may be cheating on its promised production cuts of 4.2 million barrels per day.

Oil Movements, which tracks oil shipments, said yesterday that demand for oil tankers is beginning to build and that compliance by members of the Organization of Petroleum Exporting Countries, which produces 40 percent of the world's crude, has stalled.

"A recent surge in charters for storage means that crude stocks at sea are likely to build in the period ahead," according to analysts with Oil Movements.

While there is no hard data on offshore storage, there are estimates of as many as 100 million barrels in offshore storage.

In other Nymex trading, gasoline for May delivery fell less than a penny to settle at US$1.3906 a gallon. Heating oil fell 1.2 cents to settle at US$1.3179 a gallon. Natural gas for May delivery fell 12.3 cents to settle at US$3.409 per 1,000 cubic feet.

In London, Brent prices rose 30 cents to settle at US$50.11 a barrel on the ICE Futures exchange.


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