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Oil below US$50 as stocks fall and earnings loom

OIL prices settled below US$50 a barrel yesterday as the energy markets tumbled with the stock markets amid growing doubts about corporate earnings and global energy demand.

Benchmark crude for May delivery fell US$1.90 to settle at US$49.15 a barrel on the New York Mercantile Exchange.

Daniel Flynn, an analyst at Alaron Trading Corp., said oil is trading off the dollar and the stock market indices, and that trend is likely to continue until global demand picks up and starts tapping into growing crude stockpiles.

Oil prices have latched onto equities in recent weeks, and both have risen on hopes that the worst of the recession is over. Oil prices jumped from below US$35 in February to above US$54 last month as economic optimism trumped concerns of poor demand and oversupply because of the recession.

Supply and demand are key factors, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, but investors should not overlook the most important fundamental - money flow.

Kloza, noting that the December crude futures contract neared US$60 recently, said investors continue to flock to the oil markets for a long-term hedge against inflation.

"That's really the yin and the yang of it right now, and I don't know if the yin is going to win or the yang is going to win," he said.

With few new economic indicators to mull over, traders focused on the start of first-quarter earnings season, with aluminum giant Alcoa Inc. scheduled to report after the stock market closes.

Many investors expect dismal earnings pictures from many companies hit by the recession. As the economy slows, so does demand for petroleum products such as motor fuels, petrochemicals and asphalt.

The U.S. Energy Information Administration releases its weekly inventory report Wednesday morning, and the International Energy Agency will follow with its monthly global oil demand survey and outlook on Friday.

"I think everyone is betting that it's going to be a pretty sharp downward revision in the 2009 forecast," Kloza said.

Flynn said few expect a sunny forecast and the expected bad news is probably priced into oil already.

In other Nymex trading, gasoline for May delivery fell 1.51 cents to settle at US$1.4604 a gallon. Heating oil lost 2.88 cents to settle at US$1.3903 a gallon. Natural gas for May delivery also slipped, down 17 cents to settle at US$3.562 per 1,000 cubic feet. Earlier, natural gas hit a new low of US$3.554 per 1,000 cubic feet.

In London, Brent prices fell US$1.02 to settle at US$51.22 a barrel on the ICE Futures exchange.


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