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Oil settles near US$50 on IEA forecast

OIL prices settled just above US$50 a barrel yesterday, recovering from earlier lows as traders continued to look for signs the economy is set to recover.

Benchmark crude for May delivery dropped US$1.19 to settle at US$50.05 a barrel on the New York Mercantile Exchange after dipping as low as US$48.84 earlier in the day.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said investors initially reacted to Friday's International Energy Agency forecast for a drop in global crude demand.

Prices fell further yesterday morning as the dollar weakened and U.S. stock markets opened in negative territory, but recovered later in the session as the Standard & Poor's 500 and Dow Jones industrials pared some early losses.

"We're still moving in tandem with these financial instruments," Ritterbusch said.

Traders last week were able to ignore weak demand, "but that was only when the stock market was doing as well as it did," said Phil Flynn, an analyst at Alaron Trading Corp.

The Paris-based IEA, an energy policy adviser to 28 member countries, said Friday that global oil demand this year will likely fall by 2.4 million barrels a day to 83.4 million barrels, or 2.8 percent lower than last year.

"In other words, the IEA lowered its estimate the equivalent of the daily output of Iraq," analyst and trader Stephen Schork said in his daily Schork Report.

Flynn said the IEA report put a damper on traders' moods because the agency usually underestimates demand. "So when they come out with such a bearish number, it really puts pressure on the market," he said.

Oil prices have rallied from below US$35 a barrel in February, mirroring a jump in stock markets, as investors anticipate massive global stimulus packages may spark an economic recovery in the second half.

Meanwhile, natural gas futures on the Nymex gained 1.8 cents to settle at US$3.628 per 1,000 cubic feet, down from a July peak of US$13.69. Lower prices mean consumers could save money on heating next winter, with some already signing contracts with distributors to lock in current low rates.

The government's Energy Information Association says the 1.67 trillion cubic feet of gas in storage around the country is 35 percent more than it was last year, and the glut comes as a global recession has pinched demand, especially in the manufacturing sector.

"The natural gas glut is another sign of what's been happening with the slowing economy, Flynn said.

On Sunday, Iran's oil minister Gholam Hossein Nozari told state television that a price of between US$75 and US$80 dollars a barrel is desirable for both Tehran and oil consumers.

Iran is a member of the Organization of Petroleum Exporting Countries, which has announced production cuts of 4.2 million barrels a day since September.

In other Nymex trading, gasoline for May delivery fell 1.78 cents to settle at US$1.4632 a gallon and heating oil dropped 3.08 cents to settle at US$1.3980 a gallon.

In London, Brent prices fell US$1.92 to settle at US$52.14 a barrel on the ICE Futures exchange.


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