Oil creeps above $40 as investors eye US stimulus

[February 10, 2009]  VIENNA (AP) -- Oil prices crept above $40 a barrel Tuesday as investors looked to a massive U.S. stimulus package to counter falling crude demand.

Light, sweet crude for March delivery rose 84 cents to $40.40 a barrel by midday in Europe on the New York Mercantile Exchange. The contract fell 61 cents overnight to settle at $39.56.

The Senate passed an $838 billion economic stimulus bill in a key test vote Monday, setting up final approval on Tuesday. The plan will then have to be reconciled with an $819 billion package from the House of Representatives.

President Barack Obama pressed his case for the stimulus plan Monday, warning that failing to act swiftly "could turn a crisis into a catastrophe."

The measure nearing approval in the Senate calls for more tax cuts and less spending than the House bill.

"There could be a $3 or $4 premium once the package comes through, but it's pretty much been priced in already," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "Going forward, the market will be looking for evidence that it's really having an impact on demand."

Treasury Secretary Timothy Geithner also plans to outline rules on Tuesday for $350 billion in bailout funds designed to help the financial industry as well as homeowners facing foreclosure.

The market largely brushed off comments Monday from OPEC Secretary General Abdalla el-Badri that the cartel would postpone 35 of 150 new oil and gas projects after crude prices have collapsed from near $150 in July.

"I think this is really more posturing," Pervan said. "They're trying to manipulate the market into thinking prices are at pinch-point levels," he said. "I'd be very surprised if they can't turn a profit at $40 a barrel."

El-Badri also said the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has completed about 80 percent of 4.2 million barrels per day of production cuts announced since September.

The worst U.S. recession in decades has led to a surge in layoffs, undermining consumer demand and sales of crude products. A report Tuesday by the American Petroleum Institute, the industry's trade association, is expected to show that oil stocks rose 3.4 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.

Oil stocks have grown about 27 million barrels in the last five weeks. U.S. Energy Department's Energy Information Administration reports its inventory data on Wednesday.

"The oil market is on its knees demand-wise," Pervan said. "The economic direction is downwards and oil is very leveraged to the health of the economy."

Weak demand caused a drop in the number of working oil and gas rigs for the 11th straight week.

"The number of total rigs employed in the U.S. dipped below 1,400 for the first time since July 2005," Schork wrote in Monday's Schork report.

In other Nymex trading, gasoline futures and heating oil rose 1 cent to $1.26 and $1.37 a gallon. Natural gas for March delivery fell 2 cents to $4.79 per 1,000 cubic feet.

In London, the March Brent contract jumped 98 cents to $47 on the ICE Futures exchange.

[Associated Press; By JAKE NEUBACHER]

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

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