- The Washington Times - Wednesday, April 15, 2009

VIENNA (AP) - Oil prices were flat Wednesday as investors digested U.S. statistics showing industrial production fell for a fifth straight month in March, suggesting crude demand could remain weak amid a severe recession.

Traders appeared torn between the bearish effects of growing U.S. oil stocks and further downward revisions of world crude needs and the bullishness of world stock markets. On Wednesday, equities appeared to be taking a breather from the strong gains of recent weeks, although losses were modest.

After being up for much of the day, benchmark crude for May delivery was selling at Tuesday’s closing price of $49.41 by afternoon European electronic trading on the New York Mercantile Exchange.

A rally that lifted prices from below $35 in February has stalled in the last couple weeks near $50 as investors look for signs of how long and deep the worst global slowdown in decades will be.

The production drop in March was steeper than expected. The Federal Reserve said production at the nation’s factories, mines and utilities dropped a seasonally adjusted 1.5 percent, matching February’s decline and worse than the 1 percent decline analysts forecast.

Factories and mines are increasingly idle, as the total industrial capacity utilization rate fell to 69.3 percent from 70.3 percent, the lowest on records dating to 1967.

Industrial production fell at a 20 percent annual rate in the first quarter, the Fed said, the sharpest quarterly downturn of the current recession. The drop will contribute to another steep contraction in the overall economy in the January-March period, which economists estimate will be in the 4 to 5 percent range. The nation’s economy shrank 6.3 percent in the fourth quarter of last year.

On Tuesday, the Commerce Department said retail sales fell 1.1 percent in March, far worse than the slight increase that analysts expected and marking the biggest fall in three months. Businesses also reported they slashed inventories for a sixth straight month in February.

In line with the depressed economy, U.S. consumer prices also dipped in March, leaving inflation over the past year falling at the fastest clip in more than a half-century.

“Demand will have to come back before you see the oil price move up from $50 in a sustained way,” said Ben Westmore, energy analyst with National Australia Bank in Melbourne. “We haven’t seen any signal that oil demand is turning, and things like falling retail sales in the U.S. contribute to that view.”

Traders also are focused on weekly petroleum inventory data that the Energy Information Agency will release Wednesday. Analysts expect an increase of 2.5 million barrels in crude stocks, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Crude stocks already are at 16-year highs.

“Even when demand does kick back in, there will be a supply response that’s easily available to cushion the price for some time,” Westmore said.

Vienna’s JBC Energy noted a massive 13.4-million-barrel build in U.S. crude stocks in the past two weeks, attributing “lower refinery runs resulting from weak product demand.” In its daily research note, it also referred to forecasts by the U.S. Energy Information Administration that 2009 world oil demand would fall by another daily 180,000 barrels to just above 84 million barrels a day.

Still, OPEC production cuts may have helped bolster prices. The Organization of Petroleum Exporting Countries, which next meets on May 28, has announced 4.2 million barrels a day of output quota reductions since September.

“It looks like OPEC is making a concerted effort to try to stick to those production quotas,” Westmore said. “If prices decline a little, I would expect another output cut at the next meeting.”

In other Nymex trading, gasoline and heating oil for May delivery were little changed at $1.46 a gallon and $1.40 a gallon. Natural gas for May delivery slipped by more than 6 cents to fetchh $3.63 per 1,000 cubic feet.

In London, Brent prices fell 3 cents to $51.93 a barrel on the ICE Futures exchange.

___

Associated Press writer Alex Kennedy contributed to this report from Singapore.

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