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Bad economic news a drag on oil prices
Jake Neubacher Associated Press Writer
Rising U.S. jobless claims and a slump in new home construction pushed oil prices lower Jan. 22 on fears that crude demand in the world’s largest economy will soften further.
Some positive earnings reports from U.S. companies and hopes of a fiscal stimulus plan by President Barack Obama had seen oil prices higher, before the release of the U.S. economic data.
After trading above $45 per barrel of crude oil the morning of Jan. 22, prices receded to levels near Jan. 21’s close. Light, sweet crude for March delivery fell 27 cents to $43.28 a barrel by mid-afternoon in Europe in electronic trading on the New York Mercantile Exchange after trading as high as $45.10.
The contract rose $2.71 overnight to settle at $43.55.
Jobless claims up Crude oil prices dropped substantially following the U.S. Labor Department’s announcement that initial jobless benefit claims rose to 589,000 in the week ending Jan. 16, from an upwardly revised figure of 527,000 the previous week.
The number of people continuing to seek benefits rose by 97,000 to 4.6 million, above analysts’ expectations of 4.55 million. That is up substantially from a year ago, when 2.7 million people were receiving unemployment checks.
A major drop in new home construction also contributed to the drop in the price of crude oil.
According to the U.S. Commerce Department, the construction of new houses dropped 15.5 percent to an annual rate of 550,000 units, capping the worst year for builders on records dating back to 1959.
The number of housing units that builders broke ground on last year dropped a staggering 33.3 percent from the 1.355 million housing units started in 2007.
Positive company news
These dismal reports reversed the rising price of crude generated by positive company news.
PNC Financial Services Group Inc., which owns bank National City Corp., and Bank of New York Mellon Corp. both reported profits a day after financial stocks plunged on fears that massive writedowns could spread throughout the industry.
IBM said late Jan. 20 it expects its earnings this year to come in above what analysts had been expecting and that its fourth-quarter profit jumped 12 percent, easily topping analysts’ estimates. Apple, meanwhile, booked record profits.
The Dow Jones industrial average rose 3.5 percent to 8,228 Jan. 21.
“Oil is going to depend on how the economic news comes out, particularly in America,” said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney.
Oil has fallen 70 percent since peaking at $147.27 a barrel in July, but is up from a five-year low of $33.20 in December.
Investors also drew confidence from U.S. President Barack Obama taking office Jan. 20, replacing George W. Bush.
“There’s the Obama factor,” Rigby said. “People are more optimistic that he can solve the economic problems than the previous president.”
On Jan. 21 the Obama administration said that three quarters of the economic stimulus package — now at $875 billion— should be spent within 18 months to have maximum impact on jobs and taxpayers.
In another indication of where markets are headed, investors will be looking to the weekly oil inventories report to be released Jan. 22 by the U.S. Energy Department’s Energy Information Administration for insight into U.S. demand.
The report is expected to show that oil stocks rose 1.9 million barrels the week ending Jan. 16, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
Crude inventories up Crude inventories have risen 7.9 million barrels during the last two weeks.
The Platts survey also projects that gasoline inventories rose 1.8 million barrels and distillates dropped 2.25 million barrels last week.
Investors may be storing crude to take advantage of expected higher prices later in the year. The December contract trades at about $54 a barrel.
“It makes sense to build stocks because the market is paying for you to hold them,” Rigby said. “It’s likely that stocks will increase again this week.”
Looking beyond the moribund U.S. energy market, JBC Energy predicted an increase in global crude oil demand for non-industrialized countries, especially China and India.
“Despite the doom and gloom driven by the crisis in the financial sector, we are cautiously optimistic about these countries,” the Vienna based firm wrote in Jan. 22’s newsletter.
In other Nymex trading, gasoline futures dropped 2 cents to $1.15 a gallon, while heating oil dropped 1 cent to $1.38. Natural gas for February delivery slipped 11 cents to $4.67 per 1,000 cubic feet.
In London the March Brent contract decreased by 31 cents to $44.71 on the ICE Futures exchange.
—Associated Press writer Alex Kennedy contributed to this report from Singapore.
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