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Oil below US$46 as stocks tumble ahead of earnings

OIL prices plunged to their lowest levels in more than a month yesterday as investors, nervous about a week chock-full of corporate earnings reports, sought safer havens in gold and the dollar.

Benchmark crude for May delivery fell US$4.45 to settle at US$45.88 a barrel on the New York Mercantile Exchange. With trading on the May contract ending Tuesday, most of the trading has shifted to the June contract. Benchmark crude for June delivery dropped US$3.96 to settle at US$48.51 a barrel.

Phil Flynn, an analyst at Alaron Trading Corp., said the oil markets are reacting to weakness in the stock markets and strength in the dollar.

"This is a market that is totally dependent on these two markets right now for direction," Flynn said. "We don't move on supply. We don't move on demand. We just move on the dollar.

"And wherever the dollar is or the stock market is, that's where we have a tendency to end up with the oil."

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said it's difficult to build a bullish scenario for the oil markets amid increasing crude supplies.

"Last week we spent much of the week scratching our heads, people wondering why oil was holding about US$50 in the face of all of these bearish fundamentals," Ritterbusch said. "This week we can say well, the markets are doing what they're supposed to do, which is discount bad news."

The Dow was down more than 250 points yesterday afternoon despite a surprisingly strong profit report from Bank of America Corp., and Oracle Corp.'s announcement that it plans to acquire Sun Microsystems Inc. for US$7.4 billion.

Stock markets had jumped more than 20 percent in the last six weeks on expectations that massive global stimulus packages would spark a recovery by the end of the year.

But concerns about the sustainability of bank earnings weighed on financial stocks. Bank of America fell more than 20 percent despite a surprisingly strong profit report, and Citigroup Inc. dropped more than 18 percent.

Halliburton Co. offered a dour outlook yesterday as it reported earnings that tumbled 35 percent from a year ago.

The Houston-based company, which helps producers with drilling, reservoir management and other oilfield work, was hurt as oil and natural gas producers cut back on exploration and drilling, particularly in North America.

Halliburton's chairman and chief executive, Dave Lesar, said there are no clear signs when the falloff will bottom out and noted that the current downturn has happened more quickly than past cycles.

Both the oil and stock markets are due for a reality check this week - among the hundreds of companies due to report are 3M Co., Boeing Co., Coca-Cola Co., DuPont, IBM Corp., McDonald's Corp., Merck & Co. and Microsoft Corp.

"You don't normally think of earnings and oil all the time in the same sentence, but it's probably going to be a major factor," Flynn said.

On Thursday and Friday, investors will get figures on U.S. sales of existing and new homes in March. The Commerce Department is also due to release March orders for durable goods - manufactured products with a lifespan of three years or more.

Oil prices have hovered around US$50 a barrel this month, after dropping below US$35 in February, as investors look for signs of the economy's direction in the second half of the year.

Trader and analyst Stephen Schork described the recent rationale for buying oil as "less bad is good."

"That is to say, the global economy continues to sputter along, but it is doing so at a slightly faster pace. Be that as it may, it is still sputtering ... and that is bad," he wrote in his Schork Report. "Telltales still exist that suggest that economies in every corner of the globe are far from turning the proverbial corner."

OPEC production cuts have helped support prices this year. The Organization of Petroleum Exporting Countries, which next meets on May 28, has announced output quota reductions of 4.2 million barrels a day since September.

In other Nymex trading, gasoline for May delivery slid 8.1 cents to settle at US$1.4119 a gallon and heating oil fell by 9.1 cents to settle at US$1.3316 a gallon. Natural gas for May delivery lost 18.9 cents to settle at US$3.54 per 1,000 cubic feet.

In London, Brent prices fell US$3.49 to settle at US$49.86 a barrel on the ICE Futures exchange.


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