Oil prices near $35 on more dour economic news

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Oil prices near $35 on more dour economic news
By JOHN PORRETTO
12-24-8

HOUSTON (AP) — Crude prices tumbled Wednesday following a raft of bad economic news and growing stockpiles of unused gasoline that suggested demand for energy has continued to erode.

Light, sweet crude for February delivery fell $3.63 to settle at $35.35 in a shortened day of trading. Prices fell as low as $35.13 just before the market closed for the holiday.

It was the ninth straight day that crude has fallen.

Investors expecting more evidence of slowing U.S. energy demand got a bit of a surprise as the Energy Department reported crude inventories dropped last week.

But Americans continue to cut back on driving amid the worst recession in a generation, leading to growing stockpiles of gasoline and eroding demand for motor fuel.

Gasoline futures plummeted below 80 cents a gallon.

"I don't see anything out of this report that's really going to change this downward move," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "Things are going to remain under downside pressure through the balance of this year and probably into the new year."

A steady stream of dismal U.S. economic and corporate data during the past few months has hammered investor confidence and sent oil prices reeling 74 percent since July.

More bad news emerged Wednesday with consumer spending falling for a fifth straight month in November, the longest weak stretch in a half century, while incomes declined under the weight of massive job layoffs.

Separately, new claims for unemployment benefits rose more than expected last week, as layoffs spread throughout the economy, more evidence the labor market is weakening as the recession deepens. The Labor Department reported initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.

Manufacturers are slashing energy use as well. Orders at U.S. factories for big-ticket manufactured goods fell again in November, reflecting further setbacks in the battered auto industry and a big drop in demand for commercial aircraft.

For the week ended Dec. 19 crude inventories fell by 3.1 million barrels, or 1 percent, to 318.2 million barrels, which is 9.1 percent above year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.

Analysts had expected a boost of 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline inventories rose by 3.3 million barrels, or 1.6 percent, to 207.3 million barrels, which is 2.4 percent below year-ago levels. Analysts expected stockpiles of the motor fuel to rise by 900,000 barrels.

Demand for gasoline over the four weeks ended Dec. 19 was 2.7 percent lower than a year earlier, averaging nearly 9 million barrels a day.

At the pump, retail gas prices fell less than a penny overnight to a new national average of $1.655 a gallon Wednesday, and remain well below the year-ago average of $2.972 a gallon, according to AAA and the Oil Price Information Service.

In a separate weekly report, the EIA said natural gas storage levels in the U.S. tumbled last week but remain 3.4 percent above the five-year average for this time of year. The EIA said natural gas inventories held in underground storage in the lower 48 states slipped by 147 billion cubic feet to about 3.02 trillion cubic feet. Analysts had expected a drop of between 142 billion and 147 billion cubic feet.

Oil traders so far have brushed off attempts by OPEC to boost prices through production cuts. The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, said last week it would slash production by 2.2 million barrels a day, its largest single cutback ever. The most recent round of cuts would reduce OPEC production by more than 2 million barrels per day.

OPEC may meet in Kuwait City on Jan. 19 to discuss further production cuts. The group's next official meeting is March 15 in Vienna.

The fall of benchmark crude on the Nymex has been paralleled by steep declines in Brent futures traded on London's ICE exchange.

Trader and analyst Stephen Schork noted that Brent crude has dropped "in 79 of the last 123 sessions ... by a total of $108.05 a barrel" — a 73 percentage point loss.

On Wednesday, February Brent crude slumped $3.75 to settle at $36.61 a barrel on the ICE Futures exchange.

In other Nymex trading, gasoline futures tumbled by 6.3 cents to settle at 79.27 cents a gallon. Heating oil plunged 12.8 cents to settle at $1.1983 a gallon while natural gas for January rose 17.3 cents to settle at $5.91 per 1,000 cubic feet.

Associated Press writers George Jahn in Vienna, Austria, and Alex Kennedy in Singapore contributed to this report.