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Oil prices fall on housing, industry, job numbers

OIL prices dropped yesterday as layoffs spread, orders for big-ticket manufactured goods evaporated and the US homebuilding industry posted its worst annual sales in more than two decades.

A worsening recession has cut severely into energy spending by businesses and consumers, pushing prices near five year lows.

Light, sweet crude for March delivery fell 72 cents to settle at US$41.44 a barrel on the New York Mercantile Exchange.

Oil traders are "seeing a US economic picture that shows no sign of getting pleasant," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "The recession is deepening."

The Commerce Department said orders to US factories for big-ticket manufactured goods fell for the fifth straight month in December.

The 5.7 percent drop for the year was the second largest in government records. Manufacturers have cut hundreds of thousands of jobs and millions of jobs have been lost across the entire economy since last year.

A record 4.78 million people claimed unemployment insurance for the week ending Jan. 17, according to a new Labor Department report. A department analyst said that as a proportion of the work force, the tally of unemployment recipients is the highest since August 1983.

Sales of new homes plunged 14.7 percent in December to the slowest monthly pace on record as the hobbled homebuilding industry posted its worst annual sales results in more than two decades.

The ailing economy has led to unprecedented declines in energy consumption by consumers. Billions fewer miles are being logged on the road. Manufacturer are slashing production, cutting energy use, and people are flying no where near as often as they have in recent years.

The mood is just as grim overseas, meaning that energy demand is falling everywhere.

The International Monetary Fund predicted global economic growth will slow to just 0.5 percent in 2009, down a sharp 1.7 percentage points from its November prediction of 2.2 percent.

"The lower GDP growth will have a significant impact on global oil demand," JBC Energy said in its market report. "We see global demand falling by as much as 480,000 barrels a day."

US storage facilities are awash in surplus crude. Storage tanks in the United States are housing more than 338.9 million barrels of crude oil, up from 15.7 percent from a year ago, according to the Energy Information Administration.

Still, gasoline futures jumped 4 percent yesterday with a strike looming at refineries along the Gulf Coast.

A strike by unionized oil workers could affect producers including ExxonMobil to Valero and Royal Dutch Shell.

Many of those companies were planning to shrink operations anyway to cope with the drop in fuel and chemical, said Peter Beutel, an analyst with Cameron Hanover. If workers go on strike, refineries that had planned to shut down part of their operation may stop running entirely, Beutel said.

"This will only hasten the movement higher of gasoline and diesel prices," he said.

A number of producers, however, said they could continue to operate even if there were a strike.

Natural gas storage levels in the US dropped more than expected last week, but remain slightly above year-ago levels and the five-year average, a government report said yesterday.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states fell by 186 billion cubic feet to about 2.37 trillion cubic feet for the week ended Jan. 23.

The US House of Representatives' US$819 billion plan passed Wednesday night aims at spurring growth amid the worst recession in decades. The package, which includes tax cuts for individuals and businesses, should create or save more than 3 million jobs, President Barack Obama said after the vote. The Senate will begin debate on the bill next week.

Meanwhile, the Organization of Petroleum Exporting Countries said it may slash production again to siphon off expansive crude inventories around the world.

OPEC Secretary General Abdalla Salem El-Badri said yesterday at the World Economic Forum in Davos, Switzerland that OPEC members will fulfill their pledge to slash production by 4.2 million barrels a day by the end of January. He added that global oil demand would pick up "by the end of this year or beginning of next year."

If needed, "OPEC will not hesitate to take some quantity out of the market," he said.

Pledges of production cuts, however, have had little effect on oil prices, with demand and not supply ruling the market.

Crude has plunged from a record US$150 per barrel over the summer and has held around US$40 since the beginning of the year.

Prices at the pump were steady overnight to a new national average of US$1.843 a gallon Wednesday, according to auto club AAA, Wright Express and the Oil and Price Information Service. Prices are 22.7 cents higher than a month ago, but US$1.14 lower than a year ago.

In other Nymex trading, gasoline futures rose 4.74 cents to settle at US$1.2309 per gallon. Heating oil dropped less than a penny to settle at US$1.4215 a gallon while natural gas for March delivery rose 12.6 cents to settle at US$4.576 per 1,000 cubic feet.

In London, the March Brent contract rose 50 cents to settle at US$45.40 on the ICE Futures exchange.


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