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Oil prices rise despite swelling inventories

OIL prices rose yesterday even though U.S. supplies continued to swell and Americans cut way back on energy consumption. Government data show the country is using the least amount of petroleum in a decade.

Benchmark crude for June delivery rose 30 cents to settle at US$48.85 a barrel on the New York Mercantile Exchange. In London, Brent prices fell by a penny to settle at US$49.81 a barrel on the ICE Futures exchange.

Oil stocks have been building for months, and traders are less surprised by record surplus numbers than they were a few months ago. Recently, crude prices have shadowed the stock market as investors look for other signs of economic recovery.

The Dow Jones industrial average and Standard & Poor's 500 index both rose yesterday amid mixed corporate earnings reports. While Morgan Stanley had a wider-than-expected loss for the first quarter, AT&T Inc., Boeing Co. and McDonald's Corp. results were more upbeat.

"Everybody's focused on the stock market," Alaron analyst Phil Flynn said. "Heavy oil supplies have been priced in somewhat."

Crude prices dipped earlier in the day after the Energy Information Administration reported that U.S. storage tanks are flush with the most oil since Sept. 14, 1990. Government data also showed that the country is using much less gasoline, diesel fuel, heating oil and other petroleum products.

For the week ended April 17, petroleum consumption dropped by more than 2 million barrels per day, compared with the same period last year. The four-week average use of 18.5 million barrels per day is the smallest draw since May 1999.

"That pretty much tells you how weak our demand for oil is," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Kloza said the numbers illustrate how U.S. manufacturers and shipping companies have yet to hit bottom. "The commercial side of the economy is still sputtering; it's just awful," he said.

The EIA report said crude inventories rose by 3.9 million barrels, or 1.1 percent, to 370.6 million barrels. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos, expected a build of 3 million barrels.

Gasoline inventories rose by 800,000 barrels, or 0.4 percent, to 217.3 million barrels, which is 1 percent above year-ago levels. Analysts expected stockpiles of the motor fuel to fall by 860,000 barrels.

"There's an awful lot of oil sloshing around out there," said Michael Lynch, president of Strategic Energy & Economic Research. "We're not going to see a pickup in demand until this summer at the earliest."

For the past several weeks, crude prices have hovered around US$50 a barrel, less than half of what they fetched last year. Energy markets that ran on fears of a global petroleum shortage last year are now dealing with a global economy that's awash in oil.

The world has lost much of its appetite for petroleum as manufacturers cut down on production and millions of laid off workers stay home.

The International Monetary Fund reported yesterday that oil consumption will be down in the U.S., China and other industrialized countries throughout the first half of 2009, compared with the same period in 2008.

Consumption in the latter half of the year will be down another 610,000 barrels a day in the U.S., though China will begin using about 20,000 barrels more per day, the report said.

Oil-producing countries have slashed crude exports as the world uses less. Analyst Addison Armstrong noted that when OPEC meets in May, Iran's oil minister will push for further production cuts in hopes of boosting oil prices to US$80 a barrel.

Even if OPEC agrees to further cuts, Kloza said it will take a long time before the added cuts in supply affect prices.

"It's tough to see it happening in the next few months," he said.

In other Nymex trading, heating oil lost 1.8 cents to settle at US$1.3299 a gallon, while gasoline for May delivery was down 2.4 cents to settle at US$1.3906 a gallon. Natural gas prices rose 2.1 cents to settle at US$3.532 per 1,000 cubic feet.


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