Oil slips below $68 ahead of new US stocks data

[June 03, 2009]  VIENNA (AP) -- Oil prices slipped below $68 a barrel Wednesday, as investors booked gains on a recent rally, but remained near seven-month highs on expectations that new data will show greater demand in the United States, the largest market for crude.

Benchmark crude for July delivery was down 63 cents to $67.92 a barrel by midday by European electronic trading on the New York Mercantile Exchange. On Tuesday, the contract slipped 3 cents to settle at $68.55.

Oil prices have doubled since March amid signs that the worst of a severe recession in the U.S. may be over.

"Bullish U.S. economic news supported the market," said Vienna's JBC Energy, linking a jump in previously owned homes and better than expected car sales data in the U.S. to oil's recent climb.

But there is some concern that the massive fiscal and monetary stimulus package unleashed this year will spark inflation and undermine the dollar, which has fallen sharply against the euro. Investors typically invest in commodities to protect themselves against the risks of inflation caused by a weaker dollar.

The move into oil "is not so much driven by the expectation of an economic recovery, but to new money seeking an inflation hedge," said Marius Botha, who helps manage a commodities hedge fund for London-based Threadneedle.

Investors will be watching for the weekly petroleum inventory data from the Energy Department's Energy Information Administration on Wednesday for signs crude demand may be growing.

Analysts expect a fall of 2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Stocks dropped last week for a third straight week after rising for the previous 10 weeks.

"With U.S. and European crude oil and product inventories at their highest levels in almost 20 years, oil is currently showing extremely bearish fundamentals," Botha said.

In other Nymex trading, gasoline for June delivery slipped by more than a cent to $1.91 a gallon and heating oil fell by nearly 3 cents to $1.77 a gallon. Natural gas for June delivery was flat at $4.12 per 1,000 cubic feet.

In London, Brent prices lost 32 cents to $67.85 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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