Oil prices drop close to 40 dollars in New York

2/5/09

LONDON (AFP) — Oil prices fell close to 40 dollars in New York, dragged down by rising inventories in the United States, the biggest crude consuming nation, analysts said.

New York's main futures contract, light sweet crude for delivery in March, eased 11 cents to 40.21 dollars a barrel.

Brent North Sea crude for delivery in March climbed 66 cents to 44.81 dollars a barrel.

"Prices bounced to around the 40-41 dollar-a-barrel range (in New York), being pulled in opposite directions by expectations of OPEC cuts bringing demand and supply into balance on the one hand, and the continuing trend of inventory builds highlighting weakness in demand on the other," said Barclays Capital analyst Kevin Norrish.

The Organization of Petroleum Exporting Countries had last week signalled it would consider more reductions in output as its member countries try to lift prices and in turn their incomes.

OPEC, which pumps about 40 percent of the world's oil, announced production cuts totalling 4.2 million barrels per day late last year as crude futures plunged close to 32 dollars from record highs of above 147 dollars in July.

Oil prices meanwhile traded mixed for a second day running after the US government's Energy Information Administration (EIA) on Wednesday reported a huge rise in crude stockpiles last week, underlining slowing demand in the world's biggest energy consumer.

"The EIA reported yet another astonishing rise in US oil stocks, highlighting lower demand and increasing imports," said VTB Capital analyst Andrey Kryuchenkov.

"However, it was somewhat balanced out by a smaller than expected increase in gasoline inventories and a larger than expected draw in distillate inventories... as seasonal demand continues to influence the market."

The EIA had Wednesday said that crude stockpiles had soared by 7.2 million barrels last week, more than double the 2.9 million barrels forecast by analysts.

It was the fifth consecutive week of gains, and the sharp rise underlined slack demand amid the global financial crisis that has brought the world economy to a near-halt.

Stockpiles of US distillates, which include heating fuel, dropped by 1.4 million barrels last week. The drop beat expectations of a reduction totalling only 600,000 barrels.

Earlier this week, crude prices had won some support from strikes at refineries in Britain and a cold snap in Western Europe, but gains were capped by concern about the impact of the slowdown on oil demand.