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Oil settles near US$50 on economic recovery hopes

INVESTORS continued to prop up oil prices yesterday, betting the global economy would turn around this year.

Benchmark crude for May delivery rose 73 cents to settle at US$49.98 a barrel in light trading on the New York Mercantile Exchange. In London, Brent prices gained US$1.27 to settle at US$53.06 a barrel on the ICE Futures exchange.

"The only thing keeping oil from going on a death march is optimism from financial companies, banks, hedge funds," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

"Sure, this is a shaky period. But if you invest in crude oil futures, when the economy finally makes its move, you'll be the beneficiary," Kloza said. "That's what they're thinking."

It may anger some to know that oil prices - and therefore the cost of gasoline, heating oil and millions of petroleum-based products - could be lower if not for investors who have no intention of using the crude stocks they buy.

But Kloza said investor money also helps drive new oil production and drilling operations.

Oil prices have hovered around US$50 this month even though a variety of reports show the world is losing its appetite for petroleum. In the U.S., storage facilities for crude oil have been swelling since the end of February. They haven't held this much oil in almost 19 years.

Stores of natural gas also are rising. The Energy Information Administration said yesterday that U.S. natural gas inventories rose by 21 billion cubic feet for the week ended April 10. The 1.695 trillion cubic feet in storage was 23 percent above the five-year average.

Demand for oil is so low that the total amount of petroleum products supplied to the market last week plunged to levels not seen since right after the Sept. 11, 2001 terrorist attacks, Schork said.

Elsewhere, earnings reports and government data gave a mixed look at the health of the U.S. economy. Upbeat earnings reports from banks like JPMorgan Chase suggested some businesses might be stabilizing.

But the government said yesterday that housing construction in March dropped to the second lowest level on record. The Commerce Department reported that construction of new homes and apartments dropped by 10.8 percent last month to a seasonally adjusted annual rate of 510,000 units.

And while new jobless claims fell more than expected, the Labor Department said the number of Americans continuing to receive unemployment insurance benefits rose above 6 million for the first time.

Still, investors seem to have looked past the dismal news.

"Demand hasn't come back yet, but the market is expecting it to turn around in the second half and grow next year," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore.

Despite the effect of speculators, a barrel of oil costs less than half of what it fetched a year ago. And manufacturers continue to buy futures contracts with the expectation that they're not going to fall any further, said Paul Smith, chief risk officer for the Mobius Risk Group.

The Houston-based energy management consulting firm works with paper manufacturers, chemical companies and other groups that have large petroleum needs.

"I wouldn't bank on another collapse, I think we've seen it," Smith said. "We're saying be prepared for stability this year and price spikes in 2010 and 2011."

In other Nymex trading, gasoline for May delivery rose 2.57 cents to settle at US$1.4725 a gallon and heating oil gained 2.04 cents to settle at US$1.4214 a gallon. Natural gas for May delivery slipped 9.6 cents to settle at US$3.597 per 1,000 cubic feet.


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