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Oil prices jump despite reports that OPEC cuts may fall short

Oil prices rose in another day of volatile trading yesterday as investors parked money in commodities even as questions arose over how much OPEC will cut production.

Light, sweet crude for March delivery rose more than 6 percent, or US$2.80, to settle at US$46.47 a barrel on the New York Mercantile Exchange.

Phil Flynn, an analyst at Alaron Trading Corp., said that after historic swings in price - from US$147 a barrel last year to below US$33 a barrel recently - traders have struggled to agree on what's driving the market.

Crude prices are "being torn in a lot of directions right now," Flynn said.

Crude fell as low as US$41.40 before spiking to US$47.

Prices tumbled Thursday after the government reported US oil storage facilities were brimming with higher-than-expected inventories.

At the same time, however, some investors are more worried about inflation and have turned to gold and other commodities like oil, Flynn said.

"There are a lot of different camps," he said. "I'm in the camp that the oil is going lower. I have a hard time believing that the economy's going to go fast enough that it will eat all this extra supply."

Even questions over production cuts by the Organization of Petroleum Exporting Countries were not enough to keep prices close to the daily low.

A new forecast by tanker-tracker PetroLogistics pins January OPEC output at 26.15 million barrels a day, said Addison Armstrong, director of market research at Tradition Energy.

While that would be 5.4 percent lower than the firm's December figures, OPEC will likely fall well below its target of 24.8 million barrels a day in production, Armstrong said.

Crude inventories in the US continue to grow, rising by 14 million barrels in just the last three weeks, according to the Department of Energy's Energy Information Administration.

"We're way undervalued right now, but it's important to take into account what's going in terms of supplies right now," said Fred Rozell, retail pricing director at Oil Price Information Service.

"They're not getting their act together," he said of OPEC.

The EIA reported crude stocks were up 217,000 barrels in Cushing, Oklahoma, to a new record high of 33.2 million barrels. Cushing stocks are closing in on the maximum operational capacity of around 37 million barrels by industry estimates, which "could further pressure WTI prices," said JBC Energy's in a research note.

Gasoline inventories rose by 6.5 million barrels, three times more than what was expected by analysts, underscoring the collapse in demand as US drivers cut back on trips.

Motorists cut their driving by 12.9 billion miles (20.7 billion kilometers) in November, down 5.3 percent from the same month a year earlier, the largest such decline of any November since monthly data estimates began in 1971, the

Meanwhile, natural gas storage levels in the US dropped last week, but are 1.2 percent above the five-year average for this time of year, according to a government report yesterday.

There were more reports from Wall Street pointing to a significant slow down in the US

General Electric Co.'s fourth-quarter profits fell 46 percent. While that was in line with lowered expectations, investors are worried the conglomerate will reduce its dividend.

Copier and printer maker Xerox Corp. fell 10 percent after its results fell short of expectations. Capital One Financial Corp., which focuses on credit card lending, reported a loss rather than the profit Wall Street expected after it set aside money to cover bad debt. The stock lost 12 percent. And Harley-Davidson Inc. said it will cut jobs and reduce shipments because of falling demand. The company's earnings for the final quarter of 2008 fell nearly 60 percent, sending the stock down 10 percent.

Overseas, the British government released data showing its economy shrank 1.5 percent in the fourth quarter, becoming the latest country to officially declare a recession.

In other Nymex trading, gasoline futures rose 6.1 cents to settle at US$1.1544 per gallon. Heating oil rose 10.19 cents to settle at US$1.4505 per gallon. Natural gas for February delivery fell 16.3 cents to settle at US$4.681 per 1,000 cubic feet.

In London, the March Brent contract rose US$2.98 to settle at US$48.37 on the ICE Futures exchange.


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