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Oil rises slightly after plunging to 3-year low

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[December 03, 2008]  NEW YORK (AP) -- Oil prices rose slightly Wednesday but remained near three-year lows as investors tried to gauge how much the slowdown in U.S. and Chinese economies will hurt demand for crude.

InsuranceBy midday in Europe, light, sweet crude for January delivery was up 30 cents to $47.26 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.32 overnight to settle at $46.96 after touching $46.82, the lowest level since May 20, 2005, when it traded at $46.20.

In London, January Brent crude rose 30 cents to $45.74 on the ICE Futures exchange.

"The rallies we've seen have been false rallies, relief rallies," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "The mood is overwhelmingly bearish at the moment."

Investors have been discouraged by growing evidence that China's economy, the world's fourth largest, may slow more than previously expected. Property prices in China have plunged, leading analysts to expect a drop in construction, an important driver of Chinese growth.

"The gloomy economic outlook and the resulting sluggish demand picture remain one of the major reasons for the slump in oil prices," said a report by JBC Energy in Vienna, Austria.

The World Bank last week cut its 2009 Chinese growth forecast to 7.5 percent, the slowest in almost two decades.

"There are much clearer signs that China is slowing, and this has caused the recent leg down in prices," Pervan said. "The U.S. remains the major market, but the downturn in China is accelerating."

Oil prices have fallen about 68 percent since peaking at $147.27 in July.

A production cut by the Organization of Petroleum Exporting Countries in October failed to halt the slide in prices, and now the group is asking non-OPEC producers for help.

OPEC President Chakib Khelil said Tuesday oil producers such as Russia, Norway and Mexico should "express their solidarity" with OPEC, either by joining the cartel or by following its reductions of output quotas.

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Russian officials have said they are preparing a cooperation agreement with OPEC that could be examined at the cartel's meeting this month in Algeria.

"If Russia cuts production, it gives a bearish signal because it shows Russia is clearly concerned about short-term weak demand," Pervan said. "Russia only reacts under major duress."

Markets will be following the release Wednesday and Friday of U.S. unemployment figures, as well as Thursday's expected interest rate cuts by the European Central Bank and the Bank of England for more clues about the direction of those economies.

"The rest of the week will remain volatile in global markets" as they react to the fresh economic data and the rate decisions, said Olivier Jakob of Petromatrix in Switzerland.

In other Nymex trading, gasoline futures fell 0.14 cent to $1.0542 a gallon. Heating oil gained 0.33 cent to $1.5865 a gallon while natural gas for January delivery slid 1.4 cents to 6.41 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



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