Crude prices rose along with equity markets yesterday as oil traders shook off new indications that energy spending will be hobbled by consumer fears and also slowing growth in developing countries.
Benchmark crude for May delivery rose $1.25 to settle at $49.66 on the New York Mercantile Exchange. Prices had declined for the past two trading days after a sustained rally throughout March.
In London, Brent prices rose $1.23 cents to $49.23 a barrel on the ICE Futures exchange.
Traders are trying to gauge demand based on shifting data about the economy and consumer confidence.
Oil prices have rebounded sharply in March, which ended the first day of trading this month just above $40.
The New York-based Conference Board said yesterday its Consumer Confidence Index rose to 26.0 in March, from a revised 25.3 reading in February, but those figures remain at historic lows.
Americans are driving billions of miles (kilometers) less each month, and that has helped to push US oil inventories to 16-year highs. On Wednesday, the government will release the latest oil inventory report, which is expected to show a build up of at least three million barrels.
On Friday, the US government will release the new monthly unemployment report, which traders look to for indications of future energy demand, particularly in the current economic environment.
Brad Samples, an analyst at Summit Energy Services Inc. in Louisville, Kentucky, said there's little evidence the recession is letting up, but he believes oil may have reached a floor — for now. By cutting production, Opec has helped create the floor, "and we think they've been fairly effective," Samples said.
"Does that mean oil can go below $47? Certainly," he said. "Does that mean it can go below $37? Then we're starting to look at pricing environments we think have probably gone by the wayside at this point."
With the global economy grinding to a halt, growth in developing countries will slow to two percent this year, according to the World Bank, which predicts economic activity will remain depressed for the next two years.
That's less than half the gross domestic product — a total output of goods and services — the World Bank expected as recently as November. The worsening economic crisis forced the bank to revise expectations.
Many analysts had believed China and India would continue to consume enormous amounts of oil even as the U.S. and Europe fell into recession. But those nations have been hurt by the economic downturn and oil prices have plunged from $147 per barrel last summer.
The US government last week said crude storage facilities were brimming with more oil than they've had in 16 years. Combined with the strategic petroleum reserve, the nation now has 1.05 billion barrels of oil in storage — enough to fuel roughly 44 million cars for a year.
The Organization of Petroleum Exporting Countries has promised to slash production by 4.2 million barrels per day, but there are doubts about the level of compliance by Opec members.
