In The News
Oil rises on views U.S. may step up banks rescue
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.
Associated Press writer Alex Kennedy in Singapore contributed to this report.