Oil above $50 despite demand concerns

[April 15, 2009]  VIENNA (AP) -- Oil prices rose above $50 a barrel Wednesday as investors shrugged off an unexpected drop in U.S. retail sales last month that suggested crude demand could remain weak amid a severe recession.

The market also seemed immune to growing U.S. oil stocks and further downward revisions of world crude needs with investors appearing to focus instead on the general bullishness of world stock markets. On Wednesday, equities appeared to be taking a breather from strong gains of recent weeks but losses were modest.

Benchmark crude for May delivery rose 64 cents to $50.05 a barrel by noon in European electronic trading on the New York Mercantile Exchange. The contract on Tuesday fell 64 cents to settle at $49.41.

A rally that lifted prices from below $35 in February has stalled in the last couple weeks near $50 as investors look for signs of how long and deep the worst global slowdown in decades will be.

On Tuesday, the Commerce Department said retail sales fell 1.1 percent in March, far worse than the slight increase that analysts expected and marking the biggest fall in three months. Businesses also reported they slashed inventories for a sixth straight month in February.

"By no means are we out of the woods just yet," President Barrack Obama said Tuesday.

"Demand will have to come back before you see the oil price move up from $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."

Traders also are focused on weekly petroleum inventory data that the Energy Information Agency will release Wednesday. Analysts expect an increase of 2.5 million barrels in crude stocks, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Crude stocks already are at 16-year highs.

"Even when demand does kick back in, there will be a supply response that's easily available to cushion the price for some time," Westmore said.

Vienna's JBC Energy noted a massive 13.4-million-barrel build in U.S. crude stocks in the past two weeks, attributing "lower refinery runs resulting from weak product demand." In its daily research note, it also referred to forecasts by the U.S. Energy Information Administration that 2009 world oil demand would fall by another daily 180,000 barrels to just above 84 million barrels a day.

Still, OPEC production cuts may have helped bolster prices. The Organization of Petroleum Exporting Countries, which next meets on May 28, has announced 4.2 million barrels a day of output quota reductions since September.

"It looks like OPEC is making a concerted effort to try to stick to those production quotas," Westmore said. "If prices decline a little, I would expect another output cut at the next meeting."

In other Nymex trading, gasoline for May delivery gained 1.5 cents to $1.47 a gallon and heating oil increased by a cent to $1.41 a gallon. Natural gas for May delivery rose by nearly 3 cents to fetch $3.72 per 1,000 cubic feet.

In London, Brent prices rose 49 cents to $52.45 a barrel on the ICE Futures exchange.

[Associated Press; By GEORGE JAHN]

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

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