Oil down below $54 amid concern over price outlook

[March 27, 2009]  (AP)  Oil prices fell below $54 a barrel Friday, after this week hitting a high for the year, on concerns about the sustainability of recent gains and lingering doubts about the recovery of the global economy and oil demand.

Benchmark crude for May delivery fell 82 cents to $53.52 a barrel by midday in European electronic trading on the New York Mercantile Exchange.

In London, Brent prices fell 70 cents to $52.76 a barrel on the ICE Futures exchange.

Oil prices hit a new high for the year Thursday as investors wagered there would be a new run on crude supplies. The contract rose $1.57 to settle at $54.34 a barrel.

But those gains have left room for declines amid a volatile outlook, said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

"Do expect a bumpy ride in the near term. There could be some selling to take profits," Shum said.

He attributed crude's recent gains to "spillover from the equities market with no change in fundamentals."

Energy prices have been surging despite reports that continue to show the U.S. economy is shrinking and oil inventories are bloated with surplus crude.

Crude in storage last week rose 3.3 million barrels to 356.6 million barrels, according the Energy Information Administration announced Wednesday. The increase was much higher than expected.

Investors, however, have bid up prices on the expectation of a future shortage of oil, analysts including Stephen Schork have said. Schork, in his daily oil report Thursday, called the gains "an aberration" given the state of global demand.

The U.S. economy, the world's biggest oil consumer, shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century, government data showed Thursday. And in Japan, exports fell by nearly half in February from a year earlier -- a record drop.

Oil prices have mostly gotten support from the advance in global stock markets this month. In New York Thursday, the Dow gained 2.3 percent to reach its highest close in six weeks amid surprisingly good earnings from some major consumer brands. Asian markets closed mostly modestly higher Friday, while in Europe most indexes were in the red by 1 percent or less in early trading.

"The Dollar Index has been consolidating all week and is not providing anymore a sustained support to oil bulls so this leaves it to the stock markets," said Olivier Jakob at Petromatrix in Switzerland. "They have been able to maintain a positive momentum so far this week but this leaves only one leg of support for an attempt at $55 per barrel."

The strength in oil has also come as the Organization of the Petroleum Exporting countries has been trying for several months to squeeze off crude production in hopes of driving up prices. Members want to cut production by 4.2 million barrels per day.

In other Nymex trading, gasoline for April delivery fell 2.97 cents to $1.5014 a gallon, while heating oil dipped 1.86 cents to $1.4627 a gallon. Natural gas for April delivery fell 2.2 cents to $3.925 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press Business Writer Kelly Olson in Seoul, South Korea, contributed to this report.

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