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Oil prices jump to high for the year

OIL prices surged to a 2009 high yesterday after a government report showed that unused crude being placed in storage slowed a bit last week.

Benchmark crude for June delivery rose 4.6 percent, or US$2.50, to settle at US$56.34 a barrel on the New York Mercantile Exchange. It was the highest close since mid-November.

Demand for energy during the recession has been decimated, leaving storage facilities more bloated than in any year since Iraq's invasion of Kuwait in 1990.

Prices for crude and gasoline have plunged as a result, providing a break for everyone from industrial companies to consumers, though that must be taken in the context of shuttered factories and layoffs.

In that same context, however, government data that in a normal year might send energy prices falling, actually sent them up across the board yesterday.

Prices for oil, natural gas, heating oil and gasoline all rose on data showing levels of crude in storage continues to rise. What sent prices sharply higher, however, is that levels did not rise more than they did.

Crude levels for the week ended May 1 rose by 600,000 barrels to 375.3 million barrels, the Energy Department's Energy Information Administration said in its weekly report. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had expected a build up of 2.2 million barrels.

An overnight report from the American Petroleum Institute even showed a 1-million-barrel slip in crude oil stocks and a 2.9-million-barrel drop in gas supplies.

In a market environment where everyone is looking for scraps of good news, it provided a shot of optimism that the economy may be on the mend.

"A sign that demand is improving perhaps? Or maybe those refiners are still indifferent to increasing supply," Phil Flynn, an analyst at Alaron Trading Corp., wrote in a morning note. "It was probably a little of both."

The EIA in its report said gasoline in storage slipped by 200,000 barrels, even though demand continues to fall. That is partly because refineries have pulled back on production as they try to match falling demand, but there is also evidence that the refineries that make gasoline are beginning to ramp up.

While demand for gas fell 1 percent over the four weeks ending May 1 with U.S. consumers still rattled, refineries increased capacity by more than 3 percent.

There is little to suggest demand for energy is picking up, but Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said there is more optimism about the general economy.

"We could see a little more vacation driving than we anticipated," Ritterbusch said. "That's being offset by the fact that refinery runs are coming back to meet any unexpected needs."

There have been other hints in recent days that recession may be loosening its grip.

The ADP National Employment Report, an unofficial gauge of the labor market, said yesterday that private sector employment fell by 491,000 last month. In the context of today's economy, that was taken as good news. It was much better than the 708,000 jobs lost in March.

On Tuesday, Fed Chairman Ben Bernanke gave his most optimistic prediction yet about the end of the U.S. recession, saying he expects the economy to start growing again this year.

U.S. bank stress test results set for release on Thursday and April unemployment figures due out Friday should provide more insight into the state of the economy and the odds that energy prices will rise.

Oil has traded near US$50 a barrel for more than a month after dropping from a record US$147 last July and rising from below US$35 in February.

In other Nymex trading, gasoline for June delivery rose 5.58 cents to settle at US$1.628 a gallon and heating oil gained about 4.5 cents to settle at US$1.4713 a gallon. Natural gas for June delivery jumped 27.2 cents to settle at US$3.887 per 1,000 cubic feet.

In London, Brent prices rose US$2.03 to settle at US$56.15 a barrel on the ICE Futures exchange.


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