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Oil gives up early gains on lower demand forecast

Oil gives up early gains on lower demand forecast

Crude prices gave up early gains after the U.S. government again lowered its forecast for global energy demand Tuesday and said average oil prices for this year will likely be below current levels on average.
Energy prices had received a boost from Federal Reserve Chairman Ben Bernanke who told the Council on Foreign Relations that the U.S. recession could end this year if the government bail out succeeds and markets return to a more normal state. The recession, now in its second year and already the longest in a quarter-century, has turned out to be more severe than the Fed had anticipated, he acknowledged in fielding questions after his speech.
Light, sweet crude for April delivery rose 29 cents to $47.36 a barrel on the New York Mercantile Exchange after closing at a two-month high Monday. Prices went into negative territory briefly after the Energy Information Administration released its short-term outlook.
In London, Brent prices rose 94 cents to $45.07 on the ICE Futures exchange.
In its outlook, the EIA cut its global demand for oil in 2009 by 200,000 barrels a day from its forecast last month. Its projection for global oil consumption this year is now 3 million barrels a day below its forecast from September.
It said the future direction of prices will depend on the timing and pace of any economic recovery.
"If economic growth in the United States and overseas rebounds sooner than expected, oil demand could experience stronger-than-expected growth and outpace production increases, leading to rising prices," the report said.
But any movement in higher prices will be muted by high inventory levels of oil among industrial countries along with surplus production capacity by the Organization of Petroleum Exporting Countries, the report said.
The report forecast oil prices of $42 per barrel for 2009 and $53 in 2010. Gasoline prices should average $1.96 a gallon this year and $2.18 next year.
The report was the first of several that will released over the several days that will influence energy prices.
The American Petroleum Institute will release its U.S crude inventory expectations later Tuesday and on Wednesday, the Paris-based International Energy Agency will release its forecast for global demand followed by EIA's weekly inventory report.
Also on Wednesday, the U.S. government will release crude inventory levels, which have finally begun to decline after nearing capacity levels as businesses and consumers cut back on energy usage.
Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., expect that the government will report that inventories of both crude and gasoline declined last week.
"Assuming crude imports steadied out at about 9 million barrels per day with no change in refinery inputs, there will likely be another drop in commercial crude stocks," said Linda Rafield, Platts senior oil analyst.
If forecasts for oil demand are weak, "That may dampen some of the enthusiasm we've seen the past couple of days," said Phil Flynn of Alaron Trading. It could serve as a "reminder what we're not out of the muck just yet."
Oil also benefited early from a strong rally that pushed the Dow Jones industrial average up nearly 5 percent in trading Tuesday afternoon.
Traders are watching to see whether the OPEC, which produces 40 percent of the world's crude, cuts output quotas when it meets Sunday in Vienna.
OPEC could announce fresh production cuts of between 500,000 and 1 million barrels a day, said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore.
"If the cut exceeds expectations, there would be a short-term pop in prices," Chu said. "But it will take months for the cut to affect supplies in the U.S. It's not an overnight thing."
In other Nymex trading, gasoline for April delivery rose less than a penny to $1.3426 a gallon, while heating oil rose 2.22 cents to $1.2376 a gallon. Natural gas for April delivery fell less than a penny to $3.868 per 1,000 cubic feet.
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Associated Press writers Jeannine Aversa in Washington, Pablo Gorondi in Budapest, Hungary, and Alex Kennedy in Singapore contributed to this report.


Updated : 2021-04-11 11:25 GMT+08:00