Wednesday, March 25, 2009

Oil ends lower

Oil prices remained lower but recovered some losses Wednesday after positive economic data and the Treasury Department's bad-bank plan outweighed a mixed inventory report.

Crude prices settled down $1.21, or more than 2.2%, to $52.77 Tuesday. Oil traded almost 4% lower just prior to the report's release.

The Energy Information Administration said oil supplies soared by 3.3 million barrels in the week ended March 20.

Analysts were expecting an increase of 1.4 million barrels, according to a consensus estimate from Platts, an energy information provider. Crude supplies are above average for this time of year.

Surprisingly strong economic data released Tuesday helped oil prices recover losses, said Phil Flynn, an analyst at Alaron Trading. Durable goods orders jumped 3.4% after tumbling the previous month, and new home sales rose almost 5%.
Market cheers government action

On Monday, the Treasury Department unveiled its "Public-Private Investment Program," in which taxpayer money will be used to seed partnerships with private investors that will buy up toxic assets of banks' balance sheets.

Major actions from the government have weakened the greenback, which push crude prices higher because oil is priced in U.S. dollars across the world.

"Inflationary action is happening right in front of our eyes, and it's changed the rules of the game," Flynn said. "For now, this is what's affecting the market - not supply and demand anymore."

Crude investors are optimistic about the Fed and Treasury actions, as well as the economic stimulus package, Flynn said.

"In the short term, the market is focused on future of what may be and not what is," he said.

The EIA report said stockpiles of gasoline fell by 1.1 million barrels, while analysts were looking for a decrease of 900,000 barrels. U.S. refineries are running at just 82% of capacity, down slightly from the previous week, the report said.

The national average price for a gallon of regular unleaded gasoline increased to $1.986, up 2 cents from the previous day, according to motorist group AAA.

The EIA report also said distillates, which are used to make heating oil and diesel fuel, decreased by 1.6 million barrels. Analysts expected a fall of 200,000 barrels.
Bullish outlook

"At some point supply and demand will matter again, but the Fed is going to control the markets for the short-term," Flynn said.

Oil prices will likely move toward $60 a barrel, he added.

"I was bearish on oil, thinking it would bottom at $25," Flynn said. "But now that the Fed has devalued the dollar, $45 is the new $25."

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