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Oil stays below US$50 amid gloomy financial reports

OIL prices wavered yesterday as investors digested a fresh stack of gloomy financial reports that showed a dip in industrial production while crude stockpiles swelled with the biggest surplus in 19 years.

Benchmark crude for May delivery fell 5 cents to US$49.36 a barrel on the New York Mercantile Exchange. In London, Brent prices rose 23 cents at US$52.19 a barrel on the ICE Futures exchange.

Traders, who have watched oil inventories grow for months, are increasingly swayed by equities markets to get a read on future demand. They won't lose faith in oil while stocks rise like they did yesterday morning, said Phil Flynn, an analyst at Alaron Trading Corp.

"Yes, we're swimming in oil," Flynn said. "But the market isn't shaken by these big supplies anymore. We've had them for a while."

The Energy Information Administration said crude oil inventories rose 5.6 million barrels last week as demand for gasoline and other fuels continued to slide.

That was more than twice what analysts expected, and the total of 366.7 million barrels now in storage is the most held since Sept. 7, 1990, according to the EIA.

Meanwhile, the Federal Reserve said that more U.S. factories and mines are becoming idle. Total industrial capacity utilization rate fell to 69.3 percent from 70.3 percent, the lowest on records dating to 1967.

In March, industrial production declined for the fifth straight month, the Federal Reserve said. Production at U.S. factories, mines and utilities dropped a seasonally adjusted 1.5 percent last month.

In line with the depressed economy, U.S. consumer prices also dipped in March, leaving inflation over the past year falling at the fastest clip in more than a half-century.

"Demand will have to come back before you see the oil price move up from US$50 in a sustained way," said Ben Westmore, energy analyst with National Australia Bank in Melbourne. "We haven't seen any signal that oil demand is turning, and things like falling retail sales in the U.S. contribute to that view."

Global demand continues to slide as well. The Organization of Petroleum Exporting Countries on yesterday dropped its forecast for 2009 crude demand by 430,000 barrels a day.

While Asia will continue to use more, the rest of the world will have a smaller appetite for crude this year, OPEC said.

OPEC now expects the world to consume 84.18 million barrels a day. Demand will shrink 1.6 percent in 2009, or 1.37 million barrels a day, compared with last year.

OPEC's forecast follows a similar U.S. government forecast that said global oil demand will fall in 2009 to 84 million barrels a day.

As countries use less, oil producers have cut back on their operations, pulling less crude from the ground. OPEC members have been working on a production cut of 4.2 million barrels a day.

The American Petroleum Institute said yesterday that U.S. oil and natural gas drilling fell in the first quarter for the first time in seven years. API estimated that 11,071 oil wells, natural gas wells and dry holes were completed in the first quarter of 2009, a 22 percent drop from the first quarter of 2008.

"The lower U.S. drilling activity indicates that the exploration and production sector is not immune to the current economic downturn," API statistics director Hazem Arafa said in a statement.

In other Nymex trading, gasoline for May delivery dropped less than a penny to US$1.4515 a gallon. Heating oil for May delivery was unchanged at US$1.4022 per gallon. Natural gas for May delivery was unchanged at US$3.690 per 1,000 cubic feet.


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