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Oil plummets as US grows bleaker

OIL prices fell below US$41 a barrel yesterday in Asia as soaring United States' unemployment and bleak corporate results kept investors pessimistic about demand for crude.

Light sweet crude for March delivery fell 49 US cents to US$40.68 a barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract overnight rose 85 cents to settle at US$41.17.

Dismal US company earnings from last quarter continued on Thursday, led by media giant News Corp which said that it lost US$6.41 billion.

A drop-off in sales has companies scrambling to cut costs by slashing payrolls. Cosmetics maker Estee Lauder Cos said on Thursday that it would cut 2,000 employees, or 6 percent of its work force.

The Labor Department reported the number of laid-off workers seeking jobless benefits rose last week to a seasonally adjusted 626,000, the highest number since October 1982 and higher than analysts' expectations of 583,000.

The number of people remaining on the unemployment compensation rolls increased slightly to nearly 4.8 million, the most since records began in 1967.

With millions out of work, investors fear a downward spiral of falling consumer demand and company losses could lead to further job cuts and weakening crude demand.

Above expectations

"We're seeing too much bad news coming out of companies," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "If companies are still laying off workers, then economic reports are going to be pretty bad going forward."

Amid the gloom, some companies are performing above analysts' beaten-down expectations. Wal-Mart's sales beat Wall Street's forecasts and department store Macy's, which this week said it would slash 7,000 jobs, raised its fourth-quarter and full-year forecasts.

The Dow Jones Industrial Average rose 1.3 percent on Thursday.

Investors are also watching for possible further production cuts by the Organization of Petroleum Exporting Countries, which has already promised to reduce output by 4.2 million barrels since September.

OPEC leaders have said that they may reduce supplies again at the group's next meeting in March.

"I think they'll try to talk the market up rather than actually cut again," Rigby said. "They still need to sell their oil to get revenue."

Oil prices won't likely fall much below US$40 a barrel and should trade in the US$50s by the end of the year, Rigby said.

"In second half, the economy should be turning around, and once we see that, commodities should start to improve," Rigby said.

In other Nymex trading, gasoline futures fell 1.38 US cents to US$1.26 a gallon. Heating oil dropped 0.46 US cents to US$1.36 a gallon.


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