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Investors see safety in oil, prices above US$50

BENCHMARK crude for May delivery yesterday added 35 cents to settle at US$50.33 a barrel on the New York Mercantile Exchange.

With the May contract ending next week, traders focused on crude stocks with a later delivery under the June contract. Crude for June delivery increased 31 cents to settle at US$52.47 a barrel.

"There's still a lot of money out there that has to go somewhere," said Michael Lynch, president of Strategic Energy & Economic Research. "They see it as a good buy long term."

Investors see oil stocks as the ultimate safe haven, a commodity that will almost certainly be in greater demand next year. That's what has kept prices aloft this week despite daily reports showing the world economy is running on less oil, not more.

The government said this week that US storage facilities were bloated with the biggest surplus in nearly 19 years.

If that wasn't enough, the US government, the Organization of the Petroleum Exporting Countries and the International Energy Agency all revised their demand forecasts, saying the world would consume even less petroleum in 2009 than expected.

A few months ago, such news probably would have pushed crude prices to new lows. But traders said they've already factored in the tepid global economy and have moved on. They're guided now by rising equities markets and a general hope that better times are ahead.

"Crude's really moving in sympathy with the stock market right now," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

Analyst Phil Flynn also noted reports that China is pumping money into raw materials like oil to shield itself from depending too heavily on the dollar. He said in a research note that the move by China has persuaded other investors to snap up oil stocks as well.

"There is growing evidence that China will look to store oil and other commodities as opposed to US treasuries," Flynn said.

Andrew Lipow, president of Lipow Oil Associates in Houston, said traders also expect a future shortage in crude as the economy picks up. Supplies may be high now, but oil exploration has declined and oil producers including both OPEC and other countries such as Mexico and Russia are sending less into the market.

Tanker tracker Oil Movements reported that exports from OPEC countries are expected to fall 560,000 barrels a day in the four-week period to May 2.

And Houston-based Baker Hughes Inc. said drilling has declined by nearly half from a year ago. The number of rigs actively exploring for oil and natural gas in the US dropped by 30 this week to 975, Baker Hughes said.

A planned expansion of oil and gas drilling off the Alaska coast also was canceled yesterday by a federal appeals court. A three-judge panel in the District of Columbia said the Interior Department failed to consider the impact on marine life before approving the program.

"If you throw in the general expectation that the economy will be less gloomy than what we've had in the past, I can see how that gives people reason to buy," Lipow said.

In other Nymex trading, gasoline for May delivery gained 1.84 cents to settle at US$1.4927 a gallon and heating oil rose less than a penny, settling at US$1.4225 a gallon. Natural gas for May delivery increased 13 cents to settle at US$3.729 per 1,000 cubic feet.

In London, Brent prices gained 29 cents to settle at US$53.35 a barrel on the ICE Futures exchange.


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