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Oil prices fade as storage levels hit 16-year high

OIL prices faded yesterday as a government report showed U.S. crude inventories rising to levels last seen in 1993.

Benchmark crude for May delivery fell US$1.21 to settle at US$52.77 a barrel on the New York Mercantile Exchange, one day after closing at a high for the year.

Crude in storage last week rose 3.3 million barrels, according to the Energy Information Administration, much more than what was expected by analysts.

In London, Brent prices shed US$1.75 to settle at US$51.75 on the ICE Futures exchange.

Oil prices rallied all last week and again on Monday amid gains in stock markets and optimism about a U.S. government plan to buy up toxic assets from banks. A weaker dollar has also caused investors to flee to commodities like oil.

Oil prices have risen about 30 percent this month even as supplies continue to rise.

Oil tumbled as low as US$51.86 early in the day as Japan reported February exports plunged an unprecedented 49.4 percent. That would be the most severe decline since the world's second-largest economy began compiling comparable data in 1980.

That set the tone early before the government reported on U.S. crude stockpiles.

The EIA said that for the week ended Friday crude inventories rose to 356.6 million barrels, which is 15.6 percent above year-ago levels. Stockpiles are now at their highest level since July 23, 1993.

Coupled with the 709.3 million barrels of oil in the nation's strategic petroleum reserve, the U.S. has 1.05 billion barrels of oil in storage, noted oil analyst and trader Stephen Schork.

Despite weak demand and growing supplies, Schork said traders bought oil as soon as the government numbers were released.

"It's almost as if the market is talking itself into going higher," he said.

Analysts had expected a boost of 1.4 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline inventories slipped by 1.1 million barrels, or 0.5 percent, to 214.6 million barrels, 5.1 percent below year-ago levels, according to the government report. Analysts expected stockpiles to fall by 900,000 barrels.

Demand for gasoline over the four weeks ended Friday was 0.7 percent higher than a year earlier, averaging nearly 9.1 million barrels a day.

That while refineries ran slightly below what was expected by analysts.

Price increases for gasoline are typical around now, but Tom Kloza, publisher and chief oil analyst for OPIS, said prices will be nowhere like they were last summer when gasoline hit US$4.11 a gallon. He said the weak economy and demand along with excess refining capacity should keep prices in check.

At the pump, U.S. gas prices rose 2 cents overnight to a new national average of US$1.986 a gallon yesterday, and remain below the year-ago average of US$3.255 a gallon, according to auto club AAA, Wright Express and the Oil Price Information Service.

Oil did not get any help after the Commerce Department said durable goods orders increased 3.4 percent last month, much better than the 2 percent fall economists expected and after a record six straight declines. It was the first advance since July and the strongest one-month gain in 14 months.

The strength was led by a surge in orders for military aircraft and parts, but demand for machinery, computers and fabricated metal products also rose.

Still, the rebound was expected to be temporary given all the problems facing the economy, and a large drop in orders in January was revised even lower.

That agency also said new home sales rebounded unexpectedly last month, but were still the second-worst on record and remained well below last year's levels.

Sales rose 4.7 percent in February to a seasonally adjusted annual rate of 337,000 from an upwardly revised January figure of 322,000. Even after the revision to January's sales results, the month remained the worst on records dating back to 1963.

Economists surveyed by Thomson Reuters had expected February sales to fall to a pace of 300,000 units.

Sales were down more than 40 percent from February 2008.

In other Nymex trading, gasoline for April delivery fell three-quarters of a cent to settle at US$1.495 a gallon, while heating oil lost 3.5 cents to settle at US$1.4647 a gallon. Natural gas for April delivery fell 1.8 cents to settle at US$4.295 per 1,000 cubic feet.


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