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Oil edges higher as US reports huge builds of crude and gasoline in storage

OIL prices rose in volatile trading yesterday after the government reported enormous builds of oil and gasoline at US storage facilities, another manifestation of how badly the deteriorating economy has cut into energy demand.

Including the latest report from the Department of Energy, crude inventory levels have risen by 14 million barrels since the week ended Jan. 2, pushing operational capacity at key storage sites to the limit.

Prices tumbled 7 percent before a late day rally, with light, sweet crude for March delivery settling up 12 cents at US$43.67 a barrel on the New York Mercantile Exchange.

Crude fell early in the day after the Commerce Department reported that new-home construction plunged to an all-time low in December. There was also more evidence that export-driven economies in Asia are being hit hard by the recession. Oil inventory data pushed prices even lower before oil prices and the stock market rallied.

The Energy Department's Energy Information Administration said for the week ended Friday crude inventories rose by 6.1 million barrels, or 1.9 percent, to 332.7 million barrels.

Analysts had expected a boost of only 1.9 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The same report showed how much less Americans are driving as the recession reaches across almost every economic sector in the country.

Gasoline inventories rose by 6.5 million barrels, or 3 percent, to 220 million barrels, more than three times what was expected by analysts.

US refineries have begun shutting operations for regular maintenance, and are also trying to match rapidly falling demand ran at 83.3 percent of total capacity on average, a drop of 1.9 percent from the prior week and also more drastic than what was expected.

That sent gasoline futures tumbling close to 10 percent at one point yesterday.

"This is a report which shows a very troubled consumer and commercial economy, with signs pointing to more trouble ahead on the demand front," said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service.

Demand of 8.6 million barrels a day for gasoline for the week reflects the most feeble numbers since just after Hurricane Katrina struck in 2005, he said.

What has happened to the energy markets is spelled out almost daily in economic reports from Washington.

The Commerce Department reported yesterday that construction of new homes and apartments fell 15.5 percent to an annual rate of 550,000 units last month. That shattered the previous low set in November and capped the worst year for builds on record dating back to 1959.

It was a much weaker showing than the pace of 610,000 that economists were forecasting.

For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a stunning 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.
The Labor Department said initial jobless benefit claims rose to a seasonally adjusted 589,000 in the week ended Saturday from an upwardly revised figure of 527,000 the previous week. The latest tally was well above Wall Street expectations of 540,000 new claims.

The last time claims were higher was in November 1982, though the work force has grown by about half since then.

Both reports send the stock market tumbling, with the Dow Jones industrial average falling more than 200 points, before coming off its low late in the afternoon.

The world's largest economy was not only to show fresh signs of strain. China's economic slump worsened in the final quarter of 2008 with growth falling to 6.8 percent compared with a year earlier, Japanese exports fell at a record pace in December and South Korea said its economy shrank in the fourth quarter. Singapore warned a day earlier that its economy could contract by up to 5 percent this year.

Meanwhile, new data shows that the driving habits of Americans has been fundamentally altered.

A report released yesterday by the Federal Highway Administration shows motorists cut their driving by 12.9 billion miles (20.7 billion kilometers) in November, down 5.3 percent from November 2007. It is the largest such decline of any November since monthly data estimates began in 1971.

The 13-month decline began in November 2007 and now tops 112 billion miles (180 billion kilometers) driving compared with the same 13-month period a year before and is more than the double the 49.9 billion decline in vehicle miles driven the 1970s, a period marked by recession, high gas prices and fuel shortages.

In other Nymex trading, gasoline futures fell 8 cents a gallon to settle at US$1.1738. Heating oil fell 3.74 cents to settle at US$1.386 per gallon while natural gas for February delivery fell 9.9 cents to settle at US$4.78 per 1,000 cubic feet.

In London, the March Brent contract rose 37 cents to US$43.39 a barrel on the ICE Futures exchange.


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