Oil steady below $39 as investors eye bad US news

[December 24, 2008]  VIENNA, Austria (AP) -- More bad economic news from the U.S. sent oil prices downward Wednesday, with a barrel of crude fetching less than $39 in thin Christmas Eve trading.

Expectations of further U.S. stock builds also kept a low ceiling on prices.

Light, sweet crude for February delivery dipped 45 cents to $38.53 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell overnight 93 cents to settle at $38.98.

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 Tuesday as the Commerce Department said sales of new homes fell in November to the slowest pace in nearly 18 years, while new home prices dropped by the biggest amount in eight months.

The department also said that the gross domestic product, the broadest measure of economic health, declined at an annual rate of 0.5 percent in the July-September quarter.

Some economists believe the U.S. economy's decline in the October-December period could be as large as 6 percent. If so, that would be the worst quarterly drop since 1982.

Investors will be watching for more evidence of slowing U.S. demand in the weekly oil inventories report to be released Wednesday by the U.S. Energy Department's Energy Information Administration.

The report is expected to show that oil stocks rose 1.5 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The Platts survey also projects that gasoline inventories increased 900,000 barrels and distillates gained 1.4 million barrels last week.

Traders have so far 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 cutback ever, adding to a 1.5 million output quotas reduction in November.

OPEC leaders, including President Chakib Khelil, have said 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 by $1.05 to $39.31 a barrel on the ICE Futures exchange.

In other Nymex trading, gasoline futures slipped by nearly 2 cents to 84 cents a gallon. Heating oil was down by less than a penny to $1.32 a gallon while natural gas for January delivery lost nearly 4 cents to fetch $5.70 per 1,000 cubic feet.

[Associated Press; By GEORGE JAHN]

Associated Press writer Alex Kennedy contributed to this report from Singapore

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 This material may not be published, broadcast, rewritten or redistributed.