Oil rises above $77 despite weak US demand signs

[December 03, 2009]  DAMASCUS, Syria (AP) -- Oil prices rose above $77 a barrel Thursday as the effects of a weak dollar offset the news that U.S. crude and gasoline supplies have jumped, suggesting demand remains sluggish.

By early afternoon in Europe, benchmark crude for January delivery was up 48 cents to $77.08 in electronic trading on the New York Mercantile Exchange.

The contract dropped $1.77 to settle at $76.60 on Wednesday after the Energy Information Administration said oil supplies grew unexpectedly last week.

Crude stocks rose 2.1 million barrels while analysts had expected a drop of 1.3 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Gasoline inventories jumped by 4 million barrels, more than the 900,000 analysts expected.

Oil has been trading in a range between $75 and $82 for about two months, supported by evidence of improving demand in China and Japan, but capped by a tepid economic recovery in the U.S.

"There are no such signs (of strong demand) yet in the U.S. data," Barclays Capital said in a report. "As for many weeks, the U.S. market does seem to be in something of a stasis, waiting for either winter or the long-awaited rebound in trucking."

The dollar's exchange rate has also often been a key factor affecting oil prices. Because it is priced in dollars, oil becomes cheaper for investors holding other currencies when the U.S. greenback weakens, as it has been doing for months.

On Thursday, the euro was up to $1.5125 from $1.5036 late Wednesday in New York.

Despite the dollar's influence, analysts also pointed to the apparently growing importance of fundamental market forces.

"Crude oil markets recovered (Thursday) from two previous days of losses, supported by a weaker US dollar," said analysts at Sucden Research in London. "However, market participants might remain cautious due to the unexpected high levels of inventories that are not a healthy sign for crude oil demand."

"It seems that investors may be switching their focus to supply-demand levels, and the fundamentals do not seem to support price gains in the energy markets," Sucden said.

In other Nymex trading in January contracts, heating oil rose 1.29 cents to $2.0493 and gasoline gained 1.47 cents to $2.0075. Natural gas climbed 1.4 cents to $4.544 per 1,000 cubic feet.

In London, Brent crude for January delivery gained 72 cents to $78.60 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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