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Oil climbs with more traders seeing bottom

OIL prices moved higher yesterday to levels some traders interpreted as a sign that energy demand may have finally bottomed out.

Benchmark crude for April delivery rose US$1.81 a barrel to settle at US$49.16 on the New York Mercantile Exchange.

Brent crude jumped US$4.26 to settle at US$48.24 a barrel on the ICE Exchange in London.

Prices also got a boost from the stock market. Major market indicators jumped more than 2 percent, including the Dow Jones industrial average, which rose 179 points.

Signs of stable demand and the upcoming summer driving season "plays into the psychology of the past of couple of days that the worst is over," said Phil Flynn of Alaron Trading.

Traders know that demand for energy is going to quit plummeting, but the question is how long will it take to restore growth, he said.

"There is still a lot of supply out there," he said.

Crude and gasoline prices have stabilized this year compared with an extremely volatile 2008, when prices peaked at US$147 a barrel over the summer, only to plunge below US$33 by December.

"Just about everybody is enjoying the calmness, even OPEC," said Jim Ritterbusch of Ritterbusch and Associates.

OPEC in recent weeks signaled that it had given up on hopes that oil would return to US$75 a barrel anytime soon, a price that it says is necessary to pay for exploration and production. But for OPEC, anything is better than prices that for months could find no bottom.

Members of the Organization of Petroleum Exporting Countries, which produce 40 percent of the world's crude, said Sunday they will try to stick more closely to the group's current output quotas, rather than making more cuts.

Addison Armstrong of Tradition Energy said more investment money has been coming into commodities recently, including oil, as traders try to push prices higher.

"On, the fundamental side, there is nothing to support this rally," said Armstrong, who is looking for prices to head lower.

But some of the surplus oil that has been held in giant tankers at sea is finally starting to come to market after being held in storage because of low prices. That would be a sign that oil markets were returning to some sense of normalcy, said Andrew Lebow, senior vice president and broker at MF Global in New York

Oil prices also appeared to shadow Wall Street, which started buying into the market in afternoon trading after the release of government data that was better than expected.

A government report on yesterday showed that the number of new housing projects that builders broke ground on in February rose sharply, defying economists' forecasts for yet another drop in activity.

The Commerce Department said construction of new homes and apartments jumped 22.2 percent from January to a seasonally adjusted annual rate of 583,000 units. Economists were expecting construction to drop to a pace of around 450,000 units.

Applications for building permits, considered a reliable sign of future activity, also rose in February by 3 percent to an annual rate of 547,000. Economists were expecting permits to fall to a pace of 500,000 units.

Even with February's rare burst of activity, housing construction is down a whopping 47.3 percent from a year ago.

"It's largely a case that it couldn't get any worse," Ritterbusch said.

Meanwhile, the Labor Department said wholesale prices edged up a tiny 0.1 percent in February as a big decline in food prices offset a 1.3 percent increase in energy prices, which have been rising for two months. Gasoline prices jumped 8.7 percent in February after a 15 percent surge in January.

Traders also were looking toward Wednesday when the government will release oil inventory figures that figure to show another build in crude oil stocks. Those numbers signal to oil markets whether demand is rising or falling.

Inventories in six of the last seven years have grown in the just-ended week, Peter Beutel of Cameron Hanover said in his daily report. Refined products, such as gasoline, have been drawn down in all seven years.


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