Oil falls below $49 amid uncertain outlook

[April 27, 2009]  NEW YORK (AP) -- Oil prices fell below $49 a barrel Monday as worries about the severe global recession were compounded by fears of the swine flu suspected of killing over 100 people in Mexico.

Analysts predicted that oil prices were unlikely to strengthen significantly soon.

Benchmark crude for June delivery was down $2.60 to $48.95 by midday in Europe, in electronic trading on the New York Mercantile Exchange. On Friday, the contract Friday jumped $1.93 to settle at $51.55.

In London, Brent prices fell $2.29 to $49.38 a barrel on the ICE Futures exchange.

Oil has traded near $50 a barrel this month, about a third of its record high in July, as the global economy remains weak and traders grapple with an uncertain outlook for recovery.

"It's range-bound trading. The market's just not going anywhere right now," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "As long as there's optimism left about turning a corner or the bottom not falling out of the global economy, then we're going to trade around $50."

"Barring any big news event, we're going to trade between $43 and $53," he said.

Olivier Jakob of Petromatrix in Switzerland said Monday's decline was a "recurring intra-week pattern," with attention focused on Wednesday's release of the U.S. Commerce Department's advance estimate of economic growth figures for the first quarter of the year.

Prices rose last week from about $45 to above $51 as U.S. stocks rallied at the end of the week on investor optimism that the worst of a severe recession may be over. But Asian and European markets were mostly lower Monday amid worries about swine flu.

"The oil market is stuck in a rut ... and any sign of tightening is swiftly smothered by negative news from the global economy and dire numbers for oil demand," said a report from KBC Market Services in Britain.

On Sunday, Abdalla el-Badri, Secretary General of the Organization of Petroleum Exporting Countries, warned that oil prices of $50 per barrel are "insufficient for continued investment" and urged that prices rise to $70 barrel.

Algerian Energy Minister Chakib Khelil predicted on Sunday that prices would rise to $60 a barrel by the end of this year.

"For high-cost projects, you probably do need a higher price level to be economically viable," said Ben Westmore, an energy analyst with National Australia Bank in Melbourne. "Once activity in the global economy comes back, we could see supply constraints leading to higher prices."

"People are starting to think longer term about the supply side," Westmore said.

But Kuwaiti Oil Minister Sheik Ahmed Al Abdullah Al Sabah said Sunday that a price of around $50 a barrel is "reasonable" for crude considering the global economic slowdown. He said OPEC should wait for the results of massive stimulus packages by governments around the world before deciding whether to cut production at the cartel's next meeting on May 28.

OPEC has announced output quota reductions of 4.2 million barrels a day since September.

"Against our initial expectations, OPEC production cutbacks have been very significant," said a report on the energy sector by Bank of America-Merrill Lynch, which estimated cuts of 5.3 million barrels day since July, "helping create a floor to global crude oil prices."

At the same time, the report said there was "little potential for energy price spikes in the next 12 months even if the global economy recovers," as capacity utilization has fallen across a broad range of industries.

Merrill Lynch said it saw Nymex oil prices averaging $62 a barrel in 2010, with chances for a stronger rebound only in 2011.

In other Nymex trading, gasoline for May delivery fell 5.2 cents to $1.39 a gallon and heating oil slid 6.03 cents to $1.3080 a gallon. Natural gas for May delivery dropped 9.2 cents to $3.205 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

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

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