Oil Rises on Views US May Step Up Banks Rescue

By: AP
By: AP

VIENNA – Improved confidence in financial markets, helped by reports the U.S. government may increase its ownership in Citigroup, boosted oil prices above $40 a barrel Monday despite a steady stream of bleak corporate and economic news.

Benchmark crude for April delivery rose 28 cents to $40.31 a barrel by midday in Europe on the New York Mercantile Exchange. The contract fell 15 cents to settle at $40.03 on Friday.

The March contract expired Friday at $38.94 a barrel.

Oil prices have recently been following equity markets as an indicator of confidence in the global economy, and investors seemed relieved by a report by the Wall Street Journal late Sunday saying Citigroup is in negotiations to let the U.S. government increase its stake in the troubled lender to as much as 40 percent.

However, analysts believe the uptick in confidence may be only temporary, as the backdrop of economic and corporate data remains weak and suggests oil demand may fall further.

Dismal jobs, industrial production and corporate earnings reports so far this year have heightened investor fears that the worst U.S. recession in decades is deepening.

J.C. Penney Co. reported a 51 percent drop in fourth-quarter profit as customers sharply cut spending on clothing and other more discretionary items. The department store chain also projected a wider first-quarter loss than analysts had predicted.

Home improvement retailer Lowe's said its fourth-quarter profit dropped 60 percent, and its earnings forecast for this year was worse than expected.

"The macroeconomics news has been nothing but gloomy, especially on jobs, which really affects the real economy," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Demand looks gloomy in the near term, so there continues to be a lot of downward pressure on oil."

This downward pressure is not likely to recover soon, according to some analysts.

"Global economic statistics and lackluster performance in global shares suggest the odds are lengthening we will see a global economic recovery in the second half of this year," said analyst Stephen Schork. "The odds are lengthening we will see a recovery in commodity prices over the next three to six months."

Current output reductions by the Organization of Petroleum Exporting Countries are helping to bolster prices, which fell as low as $35 a barrel last week.

OPEC has pledged to cut 4.2 million barrels a day from production since September, and the group's former president, Algerian Energy and Mines Minister Chakib Khelil, told state media on Sunday that the 13-nation cartel is likely to cut further when it meets on March 15.

The Energy Information Agency reported last week that crude inventories in U.S. storage fell unexpectedly, proof the OPEC cuts are starting to impact supplies, Shum said.

"OPEC production cut are starting to show up in real data rather than just anecdotal evidence," Shum said. "Oil has shown a remarkable resilience considering the bad economic backdrop."

In other Nymex trading, gasoline futures rose 1 cent to $1.08 a gallon. Heating oil remained steady at $1.20 a gallon, while natural gas for March delivery jumped 2 cents to $4.03 per 1,000 cubic feet.

Brent prices rose 56 cents to $42.45 on the ICE Futures exchange in London.


Comments are posted from viewers like you and do not always reflect the views of this station.
powered by Disqus
631 SW Commerce Pl. Topeka, Kansas 66615 phone: 785-272-6397 fax: 785-272-1363 email: feedback@wibw.com
Gray Television, Inc. - Copyright © 2002-2014 - Designed by Gray Digital Media - Powered by Clickability 40076217 - wibw.com/a?a=40076217