Oil edges upward after plunging on US report

[January 08, 2009]  VIENNA, Austria (AP) -- Oil prices crept higher Thursday, but aftershocks from an unexpectedly high increase in U.S. inventories kept the market subdued after a 12 percent plunge overnight.

More dismal economic and corporate news from the U.S. also suggested demand is slowing and helped keep a lid on prices.

Light, sweet crude for February delivery rose 42 cents to $43.05 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe.

On Wednesday, the contract tumbled $5.95 to settle at $42.63 after the U.S. Department of Energy's Energy Information Administration said that inventories of commercial crude oil inventories rose 6.7 million barrels. That was well above the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.

The "huge builds in both the crude and products markets for last week" was the main downward price driver, said trader and analyst Stephen Schork, in his Schork Report. And Toby Hassall, an analyst with investment firm Commodity Warrants Australia in Sydney, said the stock build "reminded the market that demand remains weak."

"Any price rallies are likely to be short-lived in the near term."

In the U.S., chip maker Intel Corp. warned about falling revenue for a second time since November while aluminum producer Alcoa Inc. and media giant Time Warner Inc. gave bleak outlooks, highlighting the deepening recession. In addition, the ADP National Employment Report said private sector jobs fell by a greater-than-expected 693,000 in December. On Wall Street, the Dow Jones industrial average slid 2.7 percent.

Oil prices had risen earlier this week to above $48 from a five-year low of $33.87 a barrel on Dec. 19 on investor concern that the conflict between Israel and Hamas in Gaza could spread to the rest of oil-rich Middle East and affect supplies.

Israel resumed its Gaza offensive Wednesday, bombing heavily around suspected smuggling tunnels near the border with Egypt after a three-hour lull to allow in humanitarian aid. Some 668 Palestinians and 10 Israelis have been killed in the 12-day assault.

"There was a shift of focus to geopolitical issues last week," Hassall said. "If the situation calms down a little over there, the market's focus will come back to the weak global demand outlook, and that should keep prices pretty suppressed."

Also adding to tensions in markets recently was the gas dispute between Ukraine and Russia, with all gas deliveries to Europe through Ukraine frozen for a second day. Both sides met earlier Thursday and were in Brussels to speak to the EU about how to resolve the impasse.

In other Nymex trading, gasoline futures rose by nearly 2 pennies to $1.09 a gallon. Heating oil gained more than 3 cents to $1.58 a gallon while natural gas for February delivery fell by over a cent to $5.86 per 1,000 cubic feet.

In London, February Brent crude rose 75 cents to $46.61 a barrel on the ICE Futures exchange.

[Associated Press; By GEORGE JAHN]

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

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.