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Oil rises on hopes drop in U.S. demand is slowing

Oil prices rose above $43 a barrel Thursday as a smaller-than-expected rise in U.S. crude inventories led some investors to hope that the collapse in demand may be slowing.

Benchmark crude for April delivery climbed 75 cents to $43.25 a barrel on the New York Mercantile Exchange by midday in Europe. The contract gained $2.54 on Wednesday to settle at $42.50.

In London, Brent prices rose 35 cents to $44.64 on the ICE Futures exchange.

The Energy Department's Energy Information Administration said Thursday that crude inventories rose by 700,000 barrels for the week ended Feb. 20. Analysts expected crude stocks would grow by 2.25 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The department said last week that inventories fell after rising more than 30 million barrels over the previous six weeks, suggesting crude demand, which has been dropping for months, may be stabilizing.

The inventory data also showed that U.S. imports of crude continued to fall, a possible sign that OPEC supply cuts are starting to be felt in the U.S. market, said Vienna's JBC Energy.

Some investors, however, were skeptical that prices were poised to break out of the $35 to $45 range they've been trading in since December. Prices have jumped about 20 percent in the last week.

"I'd like to see a couple more weeks of inventory data to see if this really is a trend," said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney.

Prices have tumbled about 70 percent since July as the worst recession in decades in developed countries sapped consumer demand.

There was more dismal news on Wednesday as the National Association of Realtors in the U.S. said sales of existing homes unexpectedly plunged in January to the lowest level in nearly 12 years, and luxury retailer Saks Inc. reported a fourth-quarter loss as it slashed prices to hold onto affluent shoppers.

In Asia, Japan said exports fell 46 percent in January. China, Taiwan and Singapore have also reported sinking exports.

"The numbers coming out of Japan, Germany, Eastern Europe, U.K., and U.S.A. are all frightening," McGuire said. "There's no sunshine out there."

McGuire said he expects OPEC to announce a production cut of at least 1 million barrels a day at the group's next meeting on March 15, a move that should help bolster prices. The Organization of Petroleum Exporting Countries has pledged to reduce output quotas by 4.2 million barrels a day since September.

Leaders of the 13-member cartel have said they would like oil to trade near $70 a barrel.

"These countries really need higher oil prices," McGuire said. "They're running out of money."

Venezuela's finance minister, Ali Rodriguez, said Wednesday that his country was prepared to support further cuts in OPEC quotas if prices stayed low.

Heavy Venezuelan crude finished last week at an average of $36 a barrel — far below the $60-a-barrel estimate on which budget calculations were based.

In other Nymex trading, gasoline futures rose 1.33 cent to $1.18 a gallon. Heating oil increased 1.94 cent to $1.2571 a gallon, while natural gas for March delivery gained 3.9 cents to $4.068 per 1,000 cubic feet.

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

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