Oil hovers near $69 amid mixed crude demand signs

[June 25, 2009]  BEIJING (AP) -- Oil prices hovered near $69 a barrel Thursday amid mixed signals about crude demand from a weekly U.S. inventory report and a slight weakening of the U.S. dollar against the euro.

At midday in Europe, benchmark crude for August delivery was up 31 cents to $68.98 a barrel in electronic trading on the New York Mercantile Exchange. On Wednesday, it lost 57 cents to settle at $68.67.

Crude prices have fallen from an eight-month high near $73 earlier this month on investor doubts that demand in a weak U.S. economy may not justify the stock and commodity rally since March.

The Energy Department's Energy Information Administration reported Wednesday that U.S. oil supplies dropped more than expected last week, falling 3.8 million barrels, or 1.1 percent. However, gasoline in storage swelled 3.9 million barrels, which was more than expected, to 208.9 million barrels.

The U.S. central bank also struck a cautious tone in comments Wednesday.

The Federal Reserve said the economy doesn't appear to be sliding as quickly as it had been and consumer spending has shown signs of stabilizing. However, job losses, shrinking wealth and tight credit will likely keep economic activity weak for some time.

"Recovery in the U.S. is likely to be a gradual process," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "So while there's some optimism that the worst is probably past, the upturn will possibly be slower than has been factored into the oil market."

At the same time, Fed policy makers held a key bank lending rate at a record low of between zero and 0.25 percent and pledged to keep it there for "an extended period" to help brace the economy.

JBC Energy in Vienna said the Fed's decision to maintain low interest rates could improve sentiment toward commodities.

"Although low rates are meant to stimulate borrowing, they could also fan inflationary fears and in turn boost investors' interest in commodities as an asset," JBC said.

Oil prices were supported Thursday by the dollar's slide against the euro, which rose to $1.3969 from $1.3921 late Wednesday in New York, as investors looked to commodities as a hedge against inflation and dollar weakness.

In Nigeria, another round of attacks on oil industry infrastructure by local militants prompted analysts to reconsider their output estimates of Africa's biggest crude producer.

"We think that we are currently getting close to 1.3-1.4 million barrels a day," said Olivier Jakob of Petromatrix in Switzerland. "This compares to 1.9 million barrels a day in July 2008 and 1.8 million barrels a day" in the first quarter of this year.

In other Nymex trading, gasoline for July delivery rose 2.44 cents to $1.8669 a gallon and heating oil gained 2.27 cents to $1.7608. Natural gas for July delivery climbed 1.3 cents to $3.774 per 1,000 cubic feet.

In London, Brent prices rose 49 cents to $68.82 a barrel on the ICE Futures exchange.

[Associated Press; By PABLO GORONDI]

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

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