SINGAPORE // Oil prices drifted below US$49 a barrel as investors considered whether a still-weak global economy and crude demand has justified a recent rally in prices. The benchmark for crude in April delivery fell $0.57 to $48.59 a barrel by midday in Singapore on the New York Mercantile Exchange. Prices rose $1.81 a barrel on Tuesday to settle at $49.16. Prices have been bolster by renewed optimism in stock markets, which oil traders often use to measure overall investor sentiment about the economy.
The Dow Jones industrial average rose 2.5 per cent on Tuesday and the Standard & Poor's 500 index jumped 3.2 per cent. Investors are trying to gauge whether the worst of the US recession is over. The Commerce Department on Tuesday said construction of new homes and apartments jumped 22.2 per cent from January to a seasonally adjusted annual rate of 583,000 units. Economists were expecting construction to drop to a pace of about 450,000 units.
However, months of massive layoffs, falling consumer demand and weak corporate profits have left some traders wary that the drop in the crude demand reached a bottom. "I haven't seen enough to think oil is going to rally for good," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "I don't expect oil demand and the price to really bounce back until the second half."
While oil prices have rallied from below $35 last month, they have mostly traded within the $40s since December. Investors will be watching for the weekly crude inventory report for the week ended March 13 by the Energy Information Administration later today. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos, expect an increase of crude stocks of 2 million barrels. "If inventories build, that could slow this rally," Mr Chu added.
Oil prices rebounded after an initial drop on Monday following the Organisation of Petroleum Exporting Countries' (Opec) decision to leave output levels unchanged. In the weeks leading up to the group's Sunday meeting, many analysts expected Opec to cut production by as much as one million barrels a day. Opec said it would adhere more closely to the 4.2 million barrels a day of production cuts the 12-nation cartel has announced since September.
In other Nymex trading, gasoline for April delivery fell $0.102 to $1.41 a gallon, while heating oil dropped $0.0047 to $1.27 a gallon. Natural gas for April delivery was up $0.013 cents to $3.83 per 1,000 cubic feet. In London, Brent prices fell $0.68 to $47.56 on the ICE Futures exchange. *AP