Oil prices rise despite huge inventory buildup

NEW YORK January 29, 2009 Chris Kahn writing for the AP reported that oil prices rose Wednesday despite another government report showing that U.S. crude stockpiles are growing as consumers and business slash spending on energy.

Traders on the New York Mercantile Exchange instead looked to Washington, where the House was expected to approve an $816 billion economic stimulus plan that could help jump-start the ailing economy.

Light, sweet crude for March delivery rose 58 cents to settle at $42.16 a barrel in trading on Nymex. The contract fell $4.15 Tuesday with bad news about housing and jobs sapping consumer confidence.

Supporters of the massive stimulus bill say it would create up to 4 million jobs. The bill, which includes roughly $550 billion in spending and $275 billion in tax cuts, could be signed by President Barack Obama by mid-February.

If so, it would lead to more energy spending by manufacturers as they ramp up production, and perhaps millions of Americans who have lost jobs since last year.

Yet on Wednesday, there were more job cuts.

Time Warner Inc.'s AOL business said it would cut up to 700 jobs, or about 10 percent of the Internet unit's work force.

Gasoline prices, while rising slightly overnight, have plummeted since July with layoffs contributing to a stunning decline in the number of miles logged on American roads.

Obama said Wednesday he is confident that an economic stimulus bill will be approved.

"The devil's going to be in the details," said Phil Flynn, an analyst at Alaron Trading Corp. "The stimulus is good, but we need to see if it will sustain us."

On Wednesday, ConocoPhillips said it lost $31.8 billion in the final three months of 2008. ConocoPhillips reported huge, one-time writedowns as plunging crude values led to in a downward shift in equity pricing.

When the fourth quarter began Oct. 1, crude was trading at around $100 a barrel. By year's end, the price was down to $44.60.

The U.S. Energy Department's Energy Information Administration on Wednesday provided fresh evidence that energy demand is waning because of the economic crisis. An inventory report showed U.S. commercial crude oil inventories jumped 6.2 million barrels from the previous week, almost twice what was expected.

Crude inventories have grown by more than 20 million barrels in the last month, evidence that hundreds of thousands of job losses during recent months have forced consumers to cut spending. The Labor Department said Wednesday that 21,137 mass layoffs took place last year, the highest annual total since the economy was in recession in 2001.

Gasoline production fell last week to an average of about 8.8 million barrels per day, down nearly 2 percent from the same period last year, according to the EIA report.

Meanwhile, the Federal Reserve agreed to do its part to cushion the fallout of a deteriorating economy by keeping the targeted range for the federal funds rate between zero and 0.25 percent. The funds rate is the interest banks charge each other on overnight loans.

Economists predict the Fed will leave rates at that range through the rest of this year.

Oil has mostly traded between $40 and $45 a barrel since mid-December even as the Organization of Petroleum Exporting Countries attempts to cut 4.2 million barrels of daily output.

"The production cuts by OPEC probably have a lot to do with oil now stabilizing in this range," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

Experts predicted that some OPEC countries would cheat on their promised production cuts to keep oil money flowing into government coffers. But analyst Addison Armstrong noted that Iran, at least, seems to have adhered to the OPEC cut.

In a research note Wednesday, Armstrong cited a senior Iranian oil official who said the country is no longer selling large amounts of crude on the spot market.

Prices at the pump rose less than a penny overnight to a new national average of $1.842 a gallon Wednesday, according to auto club AAA, Wright Express and the Oil and Price Information Service. Prices are 22.3 cents higher than a month ago, but $1.136 lower than a year ago.

In other Nymex trading, gasoline futures rose 8 cents to settle at $1.18 a gallon and heating oil rose 5 cents to settle at $1.42 a gallon. Natural gas for February delivery dropped 3 cents to settle at $4.48 per 1,000 cubic feet.

In London, the March Brent contract climbed $1.17 to settle at $44.90 on the ICE Futures exchange.