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Oil jumps for second day in a row

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Posted: February 26, 2009 1:49 p.m.
Updated: February 26, 2009 1:38 p.m.
DENVER — Oil prices jumped for a second consecutive day Thursday as the supply of crude, for months a secondary consideration to rapidly declining demand, appeared to gain force as a market mover.

Traders have followed economic data that suggested producers could not cut production fast enough to match falling demand.

The government reported that imports over the last two weeks are more than 10 percent below the prior month's average, hinting that massive OPEC cuts may finally have reached the U.S. market.

Light, sweet crude for April delivery climbed $1.84 to $44.34 a barrel on the New York Mercantile Exchange.

Many analysts believe that the uptick in prices is temporary, and that the severe global economic downturn will depress prices further.

Alaron Trading analyst Phil Flynn said prices could dip again into the $30 range with inventories near record levels.

And based on past behavior, analysts remain skeptical that OPEC can stick to output cuts with the budgets of member countries under severe strain.

The Organization of Petroleum Exporting Countries appears to have stuck to production cuts of 4.2 million barrels a day and most believe another cut of at least 1 million barrels will be announced during the next OPEC meeting on March 15.

The Abu Dhabi National Oil Company said Thursday it would cut as much as 17 percent of its output on various grades of oil. Reductions of 10 percent to 15 percent were announced late January.

The report came a day after the U.S. government released data showing that gasoline demand was up 1.7 percent, compared with the same period last year, to an average of 9 million barrels per day.

"Year-over-year demand growth is almost back to normal," Flynn wrote in his daily report. "Kind of a surprise but it could be a sign that the mood of the consumer is improving a bit."

In London, Brent prices rose $1.21 cents to $45.50 a barrel on the ICE Futures exchange.

The U.S. Energy Department on Wednesday said crude inventories rose 700,000 barrels for the week ended Feb. 20. While inventories are still rising, that trend appears to be slowing. The market was jolted last week when the government reported inventories fell slightly.

Analysts had expected another build up of 3.5 million barrels.

U.S. refiners stung first by soaring crude prices in 2008, then an unprecedented drop off in demand this year, are averaging 82.2 percent of capacity. That is more than 5 percentage points below the five-year average, energy analyst Stephen Schork said.

"Refineries are not making gasoline and they are not importing it," he wrote Thursday. "We are going to see a steady purge in material."

That could mean recent declines in gas prices are short-lived. That showed up in gas futures Thursday, which rose nearly 8 percent, the second straight day of strong gains.

Gasoline futures rose 7.78 cents to $1.2445 a gallon. Heating oil increased 4.3 cents to $1.28 a gallon, while natural gas for March delivery gained 6.7 cents to $4.096 per 1,000 cubic feet.

___

Associated Press writers Alex Kennedy in Singapore, Tarek El-Tablawy in Cairo and Pablo Gorondi contributed to this report.

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