Oil stays near $35 after big drop overnight

[February 18, 2009]  VIENNA (AP) -- Benchmark oil prices languished around $35 a barrel Wednesday as further signs the U.S. recession is deepening spurred market concerns over crude demand.

Investors appeared doubtful that a $787 billion stimulus bill, signed Tuesday by President Barack Obama, will be enough to jolt the U.S. out of its worst recession in decades.

Light, sweet crude for March delivery rose 9 cents to $35.02 a barrel by noon on the New York Mercantile Exchange. The contract on Tuesday fell $2.58 to $34.93.

Beyond worries about the U.S. economy, Vienna's JBC Energy noted in its news letter that "a slump in European stock indices and U.S. automakers' demand for extra government funds added to the negative sentiment in the market."

General Motors Corp. and Chrysler LLC asked the government Tuesday for an additional $14 billion in aid. GM presented a survival plan that also calls for cutting a total of 47,000 jobs globally and Chrysler said it will cut 3,000 more jobs.

GM, the world's largest automaker, said it could run out of money by March without new funds.

"That's 47,000 more people who will be driving less," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "It's mind-blowing. It makes you wonder whether these companies should survive."

Stock markets, which oil investors look to as a broad measure of sentiment about the economy, fell Tuesday as the New York Federal Reserve said its regional index of manufacturing activity is showing the sharpest contraction in February since it started the gauge in 2001.

The Dow Jones industrial average closed down 3.8 percent, just above a 5-year low.

"The U.S. economy just keeps coming up with these bad reports, and that's definitely making market sentiment pessimistic," Rigby said.

The impact of the shrinking U.S. economy has reverberated throughout the world. Singapore said Tuesday its non-oil exports fell 35 percent in January from a year earlier, while sales to the U.S. plunged 50 percent.

"It shows Americans are tightening their belts and not spending," Rigby said.

Japan, the world's second-biggest economy, said Monday its economy shrank 3.3 percent in the fourth quarter from the previous quarter, the worst performance since 1974.

OPEC has tried to bolster prices by cutting supplies, and the group's leaders have said they may slash output again at a meeting next month. The Organization of Petroleum Exporting Countries has announced 4.2 million barrels a day of productions cuts since September.

"You have OPEC trying to talk up the market, but that's not doing anything," Rigby said.

In other Nymex trading, gasoline futures were up slightly at $1.12 a gallon. Heating oil gained over a penny to $1.20 a gallon, while natural gas for March delivery slid more than 4 cents to $4.16 per 1,000 cubic feet.

In London, the March Brent contract gained 56 cents to $41.59 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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