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Energy prices tumble to end the week

CRUDE prices fell sharply to end the week and natural gas tumbled to seven-year lows yesterday due to a severe drop off in energy spending by industrial customers.

Benchmark crude for May delivery dropped US$1.96 to settle at US$52.38 a barrel on the New York Mercantile Exchange.

In London, Brent prices fell US$1.48 to settle at US$51.98 a barrel on the ICE Futures exchange.

A stronger dollar helped push investors away from commodities. Crude, which is traded in US currency, tends to move in opposite directions to the dollar.

"The dollar's strong as hell today," Andrew Lebow, senior vice president and broker at MF Global. "It's gotten people's attention."

Crude stocks surged all week as traders and brokers started to sense the return of a bull market. Prices have steadily increased for a month.

Oil prices set new 2009 highs on both Tuesday and Thursday, and there was a growing consensus among experts that the world will struggle through another supply shortage as oil companies slash spending on exploration and production.

But most analysts agree that will not occur for some time because demand for energy has fallen so fast.

"People are getting way ahead of the game" said Michael Lynch, president of Strategic Energy & Economic Research. "There's still a lot of inventory out there."

The federal government said Wednesday that crude storage facilities in the US are brimming with more oil than they've had in 16 years. Combined with the nation's strategic petroleum reserve, the nation now has 1.05 billion barrels of oil in storage - enough to fuel roughly 44 million cars for a year.

Crude is piling up as airlines, manufacturers, automakers and just about every other sector slow down and millions of workers lose their jobs.

The Energy Department said Thursday that US stores of natural gas rose by 3 billion cubic feet to about 1.65 trillion cubic feet for the week ended March 20. And analyst and trader Stephen Schork noted that electricity demand is also way down, with the amount of electrons transmitted last week at the lowest level since April 14, 2006.

"Bottom line, nothing has changed," Schork said in his daily oil report. "Underground caverns, mines and aquifers are brimming with molecules for this point in the season. The heating season is winding down and industrial and commercial demand is virtually nonexistent."

There are signs that the supply of crude is getting closer to matching demand, which has evaporated.

The Organization of Petroleum Exporting Countries has promised to slash production by 4.2 million barrels per day. Companies that track supertankers show that exports from OPEC countries have dropped to the lowest level since June 2003, according to analyst Addison Armstrong.

A new study by Cambridge Energy Research Associates also said plummeting crude prices has sent shockwaves through the oil industry, discouraging enough exploration to cut future oil supplies in half. The CERA report said that of the potential 14.5 million barrels per day in new production expected from 2009 to 2014, about 7.6 million barrels were "at risk."

"A lot of those reports tend to be too pessimistic," Lynch said. "There are a lot of projects that started when prices were at US$40 a barrel. And there's no reason for them to be pulling back."

In other Nymex trading, gasoline for April delivery fell 4.32 cents to settle at US$1.4879 a gallon, while heating oil dipped 4.85 cents to settle at US$1.4330 a gallon. Natural gas for April delivery plunged 58.6 cents to settle at US$3.631 per 1,000 cubic feet.


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