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Oil prices rise sharply for second day

OIL prices jumped for a second consecutive day yesterday as the supply of crude, for months a secondary consideration to rapidly declining demand, appeared to gain force as a market mover.

Traders have followed economic data that suggested producers could not cut production fast enough to match falling demand.

The government reported that imports over the last two weeks are more than 10 percent below the prior month's average, hinting that massive OPEC cuts may finally have reached the U.S. market.

Light, sweet crude for April delivery jumped 6.4 percent, or US$2.72 to settle at US$45.22 a barrel on the New York Mercantile Exchange.

Many analysts believe, however, that the uptick in prices is temporary. They say inventories are at near-record levels and the severe global economic downturn will depress prices further.

"It's still dependent on whether or not we get some sort of economic recovery," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Consumers and businesses have slashed spending on energy and millions of people are out of work, meaning the no longer get in a car and drive every day.

The government reported yesterday that new jobless claims rose again and the number of Americans continuing to receive unemployment benefits has topped 5.1 million.

The Labor Department saidfirst-time requests for unemployment benefits jumped to 667,000 from the previous week's figure of 631,000.

And analysts are still skeptical that OPEC will stick to production cuts with the budgets of member countries under severe strain.

The Organization of Petroleum Exporting Countries appears so far to have stuck to production cuts of 4.2 million barrels a day and most believe another cut of at least 1 million barrels will be announced during the next OPEC meeting on March 15.

The Abu Dhabi National Oil Company said yesterday it would cut as much as 17 percent of its output on various grades of oil. Reductions of 10 percent to 15 percent were announced late January.

The report came a day after the U.S. government released data showing that gasoline demand was up 1.7 percent, compared with the same period last year, to an average of 9 million barrels per day.

"Year-over-year demand growth is almost back to normal," Alaron Trading analyst Flynn wrote in his daily report. "Kind of a surprise but it could be a sign that the mood of the consumer is improving a bit."

In London, Brent prices rose US$2.22 to settle at US$46.51 on the ICE Futures exchange.

The U.S. Energy Department on Wednesday said crude inventories rose 700,000 barrels for the week ended Feb. 20. While inventories are still rising, that trend appears to be slowing. The market was jolted last week when the government reported inventories fell slightly.

Analysts had expected another build up of 3.5 million barrels.

U.S. refiners stung first by soaring crude prices in 2008, then an unprecedented drop off in demand this year, are averaging 82.2 percent of capacity. That is more than 5 percentage points below the five-year average, energy analyst Stephen Schork said.

"Refineries are not making gasoline and they are not importing it," he wrote yesterday. "We are going to see a steady purge in material."

That could mean recent declines in gas prices are short-lived. That showed up in gas futures Yesterday, which soared more than 12 percent, the second straight day of strong gains.

Gasoline futures rose 13.37 cents to settle at US$1.3004 a gallon. Heating oil increased 5.64 cents to settle at US$1.2941 a gallon, while natural gas for March delivery gained 4.8 cents to settle at US$4.077 per 1,000 cubic feet.


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