Oil stays below $50 as recovery hopes wane

[April 23, 2009]  VIENNA (AP) -- Oil prices rose but stayed well below $50 a barrel Thursday as rising U.S. crude inventories and a stark demand forecast by the IMF doused investor optimism for a near-term recovery from the global recession.

On the upside, traders were following world stock markets, which were mixed but mostly up. Crude prices have frequently followed stock market movements as edgy investors look for a light at the end of the black hole of bad economic news.

Benchmark crude for June delivery rose 25 cents to $49.10 a barrel by noon in European electronic trading on the New York Mercantile Exchange. The contract rose 30 cents Wednesday to settle at $48.85.

Oil prices shot above $54 a barrel last month from below $35 in February on expectations that the worst of recession may be over. But rising unemployment, falling consumer spending and poor corporate earnings have undermined investor confidence that an economic rebound is imminent.

"There hasn't been enough evidence of an improvement in fundamentals," said Toby Hassall, an analyst with investment firm Commodity Warrants Australia in Sydney. "That's why we've come back off the mid-$50s."

The Energy Information Administration said Wednesday that U.S. crude inventories for the week ended April 17 rose by 3.9 million barrels to the highest level since 1990. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos, expected a build of 3 million barrels.

Gasoline inventories rose by 800,000 barrels, which is 1 percent above year-earlier levels. Analysts expected stockpiles of the motor fuel to fall by 860,000 barrels.

Petroleum consumption dropped by more than 2 million barrels per day, compared with the same period last year. The four-week average use of 18.5 million barrels per day is the smallest draw since May 1999.

"Inventories are large and continue to rise," Hassall said. "The rate of increase of inventories is starting to look exponential. That makes it difficult for oil prices to rally."

The International Monetary Fund said Wednesday it expects U.S. crude consumption in the second half will fall 610,000 barrels a day in the U.S., though demand in China pick up by about 20,000 barrels per day.

Still, higher prices could come as early as this year.

Hassall expects oil prices to rise as high as $65 a barrel by the end of the year as massive government spending programs around the world begin to boost growth.

"We've had unprecedented fiscal stimulus, and those measures have improved the chance of a recovery," Hassall said.

Further down the road, Vienna's JBC Energy suggested that a possible period of inflation once the economic crisis ends "could spur financial interest in oil as the commodity is considered a hedge against inflation."

"Sooner or later the enormous deficits need to be unwound," said its daily newsletter. "While an increase of the tax burden is the most obvious option, some governments might resort to inflating their currency to avoid default."

In other Nymex trading, gasoline for May delivery fell by over a penny to $1.38 a gallon and lost less than a cent to fetch $1.32 a gallon. Natural gas for May delivery dropped 2 cents to $3.51 per 1,000 cubic feet.

In London, Brent prices rose 8 cents to $49.89 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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