- The Washington Times - Wednesday, April 1, 2009

Oil prices fell to near $48 a barrel Wednesday as new signs of deterioration in the world’s three biggest economies _ the U.S., Japan and China _ undermined crude’s recent gains, while U.S. crude stocks are likely continuing to grow.

Benchmark crude for May delivery was down $1.49 to $48.17 a barrel by mid-afternoon in Europe in electronic trading on the New York Mercantile Exchange. That fall nearly wiped out overnight gains, when the contract rose $1.25 to settle at $49.66.

In London, Brent prices fell $1.18 to $48.05 a barrel on the ICE Futures exchange.

Oil prices rebounded sharply last month _ from $40 to above $53 _ taking their cue from a rally in stock markets but also defining a range that is unlikely to be broken for some time unless there’s a significant improvement or deterioration in economic indicators.

Americans are collectively driving billions of miles less each month, and that has helped to push U.S. oil inventories to 16-year highs. On Wednesday, the government will release the latest oil inventory report, which is expected to show a build up of at least 3 million barrels.

“What the oil market wants to see is better economic news, something that would support demand. What that means in the U.S. is that the consumer needs to get back into the car. The consumer needs to feel things are getting better,” said John Vautrain, energy analyst at consultancy Purvin & Gertz in Singapore.

But the latest data on the U.S. property market suggests American consumers will remain reluctant to open their wallets, he said.

Home prices in the world’s largest economy sank by 19 percent in January, the sharpest annual fall on record, according to Standard & Poor’s/Case-Shiller index of home prices in 20 major cities.

“Global demand for this year remains suspect … the world is (and will remain) over supplied with oil,” said U.S. analyst and trader Stephen Schork. “Oil bulls are still fighting an uphill battle.”

Data from Japan and China also suggested their economies _ the two largest in Asia _ have yet to see any benefit from the massive fiscal stimulus packages announced by their governments.

The contraction in China’s manufacturing _ which accounts for about 40 percent of the world’s third-biggest economy _ worsened last month, according to a key survey. In Japan, the world’s No. 2 economy, confidence at the country’s major manufacturers dived to an all-time low.

Some analysts say production cuts by the Organization of Petroleum Exporting Countries have helped to stabilize the oil price, though there are still doubts about the level of compliance with the promised cuts of 4.2 million barrels a day. Prices have plummeted from near $147 in July as the global financial crisis unfolded.

Vautrain said oil is likely to continue trading within a $40 to $50 range unless there’s some significant change in the world economic outlook. “If we saw numbers below $40, that would be remarkable. It would suggest further serious deterioration in demand.”

In other Nymex trading, gasoline for May delivery fell 3.46 cents to $1.3867 a gallon and heating oil fell 3.47 cents to $1.3332 a gallon.

Natural gas for May delivery fell 7 cents to $3.706 per 1,000 cubic feet.


AP Business Writer Stephen Wright in Bangkok contributed to this report.

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