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Oil prices slump below $43 on inventory report

Oil prices slump below $43 on inventory report

Oil prices tumbled more than 7 percent Wednesday as U.S. inventories swelled with surplus crude and traders started to doubt whether OPEC would cut production further.
Benchmark crude for April delivery fell $3.38 to settle at $42.33 a barrel on the New York Mercantile Exchange.
The Energy Information Administration said crude supplies in the U.S. climbed unexpectedly by 700,000 barrels for the week ended March 6. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., expected a drop of 1 million barrels.
Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said the most disturbing part of the report was that national demand for distillate fuel oil dropped by 6.1 percent. Distillate fuel includes diesel fuel used by trucking companies, miners and manufacturers.
"That's an ugly number," Kloza said. "You're not seeing commercial goods moved around the country like a year ago. And we were in a recession a year ago."
Meanwhile, investors are coming to believe that OPEC may not cut production when it meets Sunday in Vienna. The Organization of Petroleum Exporting Countries has already announced output quota reductions of 4.2 million barrels a day, and some analysts had expected the 12-member group would slash another 500,000 barrels per day.
Oil officials from Saudi Arabia have said that instead of trimming production even more, OPEC should focus instead on making sure its members are in compliance with the previous cuts, analyst Phil Flynn said.
Flynn said Saudi Arabia may not be interested in trimming production more if other countries won't do the same.
"Are the Saudis getting sick of carrying the load for the cheaters in the cartel?" Flynn said in a research note. "Are the Saudi's getting ready to break ranks and force the other members of the cartel to either cut back more or just shut up?"
With another production cut in doubt, many traders are dropping their bids in preparation for an International Energy Agency report on Friday. The IEA report is expected to say that global demand has fallen more than was previously thought, said Michael Lynch, president of Strategic Energy & Economic Research.
"I thought the OPEC cuts would have had more of an effect by now," Lynch said. "Clearly, the recession is overwhelming OPECs efforts."
Oil prices had been rebounding from a low of $33.98 a barrel in February as U.S. crude inventories dropped and investors started to gain confidence that OPEC's cuts would effectively balance falling global demand.
As oil grew to almost $50 a barrel, analyst and trader Stephen Schork said many investors started thinking about cashing in. The bearish crude inventory report helped them make that decision, Schork said.
"As usual, we've been buying on rumor and now we're selling on fact," Schork said.
Investors also were presented another batch of gloomy economic news Wednesday.
Chinese oil imports have dropped 13 percent in the first two months of the year, and are now at their lowest level in more than two years, analyst Addison Armstrong said. Chinese manufacturers are struggling, with exports plunging 25.7 percent year-over-year in February, Armstrong said.
Automobile sales also are plunging around the world, according to Vienna's JBC Energy said. "In February, U.S. passenger car sales dropped by 39 percent year-on-year, while sales in Europe also fell sharply," JBC Energy said in a research note.
The U.S. Labor Department said Wednesday that California, South Carolina, Michigan and Rhode Island registered double-digit unemployment rates in January. The national average unemployment rate was 8.1 percent in February, the highest in more than 25 years.
Elsewhere, Staples Inc. said Wednesday its fourth-quarter profit dropped 14 percent, though the results were related to last summer's acquisition of a Dutch rival dragged down results. Staples added that shoppers are spending less on computers, accessories and furniture. Sales fell 13 percent at stores in North America that were open at least a year, the company said.
Luxury department store owner Neiman Marcus Inc. said it lost $509.3 million in the second quarter on a series of hefty write-downs totaling more than half a billion dollars.
And teen-focused American Eagle Outfitters Inc. said its fourth-quarter profit dropped 77 percent because of unplanned markdowns during the weak holiday season and a charge related to the declining value of some investment securities.
In other Nymex trading, gasoline for April delivery fell 3.8 cents to $1.259 a gallon, while heating oil slipped 5.7 cents to $1.142 a gallon. Natural gas for April delivery fell 3.6 cents to $3.804 per 1,000 cubic feet.
Brent prices dropped $2.57 to $41.39 on the ICE Futures exchange in London.
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Associated Press writers George Jahn in Vienna and Alex Kennedy contributed to this report from Singapore.