Oil prices rise as Wall Street rebounds

January 21, 2009 1:01:59 PM PST
Oil prices jumped more than 6 percent Wednesday as a rebound on Wall Street overshadowed a pending government crude report expected to show that U.S. inventories continue to swell.Light, sweet crude for March delivery rose $2.71 to settle at $43.55 a barrel on the New York Mercantile Exchange.

"Everything right now is about the economic numbers and the financial markets," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service.

The Dow Jones industrial average rose 270 points on better-than-expected news from IBM.

IBM said late Tuesday it expects its earnings for the new year to come in well above what analysts had been expecting and that its fourth-quarter profit jumped 12 percent, easily topping analysts' estimates. Swedish wireless equipment maker LM Ericsson also reported earnings that beat forecasts.

Crude prices have tumbled since the beginning of the year with global demand for energy falling. On Tuesday, the February contract closed below $40 for a second consecutive month.

The market is in a seasonal lull - at the end of winter yet too early for the summer driving season to provide any sort of a boost, Kloza said.

Though crude prices fell 16 percent from the first trading day of the year until the contract expired Tuesday, retail gasoline prices have continued to rise.

Gas prices inched up .005 cent to $1.848 a gallon Wednesday, more than 18 cents higher than they were just a month ago, according to auto club AAA, the Oil Price Information Service and Wright Express.

Kloza said that disparity may be coming to an end soon as pump prices catch up to crude's downward spiral.

Gas prices bottomed out at $1.61 a gallon on Dec. 31, and Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, thinks they may return to a range between $1.60 and $1.70 a gallon.

"We're seeing some zigs and zags, a few ups and downs here and there but, by and large, this gasoline market has had a big down move in price during the past seven months," he said. "Now we're fairly close to a bottom."

Analysts with Platts, the energy information arm of McGraw-Hill Cos., believe refiners are able to make more money turning crude into gasoline, but retail gas prices will follow the gasoline futures market, which is leveling off.

The Energy Department is scheduled to release its weekly crude inventory report on Thursday, a day later than typical because of Martin Luther King Jr. Day.

Analysts expect an increase of 1.9 million barrels, according to a survey by Platts.

If those estimates are correct, U.S. crude inventories will have risen by 9.8 million barrels in just three weeks, a clear indication of how much both industries and consumers have slashed spending on energy.

Analysts surveyed by Platts predict gasoline stocks will increase 1.9 million barrels because of sluggish demand during a cold snap across much of the country.

In typical years, the summer driving season would lead to price increases, but this year is far from typical, said Platts senior oil analyst Linda Rafield.

"I'm not so sure people are going to driving much for summer vacations," Rafield said. "There are severe job losses and this economy is very bad."

In other Nymex trading, gasoline futures rose 3 cents to settle at $1.1738 a gallon. Heating oil rose a penny to settle at $1.386 a gallon while natural gas for February delivery rose 13.8 cents to settle at $4.78 per 1,000 cubic feet.

In London, the March Brent contract rose $1.40 to settle at $45.02 on the ICE Futures exchange.

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Associated Press writers Alex Kennedy in Singapore and George Jahn in Vienna contributed to this report.

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