Oil hovers near $41 after US news spurs big drop

[March 03, 2009]  NEW YORK (AP) -- Oil prices crawled up to near $41 a barrel Tuesday after grim U.S. economic news and tumbling stock markets sparked a huge drop Monday.

Benchmark crude for April delivery was up 74 cents to $40.86 a barrel by midday in Europe on the New York Mercantile Exchange.

On Monday, the Nymex contract lost $4.61, or 10 percent, to settle at $40.15 a barrel after American International Group Inc. reported losses of $61.7 billion in the fourth quarter, the largest quarterly loss in U.S. corporate history.

AIG, once the world's largest insurer, will receive up to $30 billion of federal assistance on top of the $150 billion in loans the company has already gotten from the government.

Oil investors often look to equity markets as a measure of broad sentiment on the economy. The Dow Jones industrial average fell 4.2 percent Monday to 6,723, a 12-year low.

"It seems like every day there's more and more bad news," said Clarence Chu, a trader with Hudson Capital Energy in Singapore. "It's looking like it will take longer for the economy to turn around."

On Tuesday, European stock markets were mostly lower after an early-session rise, with London's FTSE 100 index down 1 percent and Germany's DAX declining 0.4 percent at 1100 GMT. Leading markets in Asia also closed mostly in the red Tuesday.

"The Dow is making new lows and is still driving the sentiment," said Olivier Jakob of Petromatrix in Switzerland.

The bleak news continued Monday as the Commerce Department said private sector wages and salaries, the key component of incomes, fell for a fifth straight month, reflecting massive layoffs during recent months.

The Institute for Supply Management said Monday the nation's manufacturing sector contracted for the 13th straight month in February.

Last week, Federal Reverse Chairman Ben Bernanke said the economy could recover in the second half, and President Barack Obama forecast gross domestic product would grow 3.2 percent in 2010.

"People are thinking that's too optimistic," Chu said.

Merrill Lynch lowered its 2009 global GDP forecast to a contraction of 0.4 percent from 0.1 percent growth, as a financial crisis that began in the U.S. sub-prime mortgage sector has blossomed into a worldwide recession.

Oil has traded near $40 since December since dropping more than 70 percent from a record $147 in July. Chu expects crude will likely continue to trade between $35 and $45 a barrel as production cuts by the Organization of Petroleum Exporting Countries help bolster prices.

The 13-member cartel plans to meet on March 15 and may add to 4.2 million barrels a day of output cuts announced since September.

Without providing specifics, Iran's official news agency said Tuesday that the country's oil minister would propose ways to boost oil prices at the meeting in OPEC's Vienna headquarters.

Gholam Hossein Nozari was quoted as saying that the group's compliance with the cuts stood at about 80 percent and said it was ready to slash output by 500,000 to 600,000 barrels per day to fulfill its promise.

In other Nymex trading, gasoline for April delivery rose 0.88 cent to $1.2950 a gallon, while heating oil gained 3.08 cents to $1.182 a gallon. Natural gas for April delivery rose 6 cents to $4.212 per 1,000 cubic feet.

In London, Brent crude rose $1.03 to $43.24 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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