Oil languishes near $35 on weak US economy

Oil languishes near $35 in Asia as investors eye weakening US economy

• By Alex Kennedy, Associated Press Writer
• On 11:37 pm EST, Thursday January 15, 2009

SINGAPORE (AP) -- Oil prices languished near $35 a barrel Friday in Asia as traders eyed a weakening U.S. economy and falling global demand that's sent crude down a third since last week.

Light, sweet crude for February delivery was down 2 cents at $35.38 a barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract fell $1.88 overnight to settle at $35.40, after trading as low as $33.20, a five-year low.

Oil prices have fallen about 30 percent since touching $50.47 a barrel last week as dismal economic and corporate results stoked investor fears that a drop-off in crude demand may be worse than expected.

Concerns center on the U.S., the world's largest consumer of oil, where falling consumer demand and rising unemployment feed each other and undermine demand for crude.

The Labor Department reported Thursday that first-time requests for unemployment insurance jumped to a seasonally adjusted 524,000 in the week ending Jan. 10. Analysts had expected 500,000 new claims. The department last week said the unemployment rate jumped to 7.2 percent in December, a 16-year high.

"Market pessimism about the international economic outlook is still weighing on the oil price," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "History has shown that these things can move more than you anticipate."

Oil demand fell last year and is expected to drop again this year.

U.S. petroleum deliveries -- a measure of demand -- fell 6 percent to 19.4 million barrels a day last year, with declines for all major products made from crude, according to the American Petroleum Institute.

The Organization of Petroleum Exporting Countries lowered its energy demand forecast for 2009, saying in its January report that it expects world demand for crude will fall 180,000 barrels per day in 2009 from the previous year.

OPEC has announced 4.2 million barrels a day of production cuts since September, moves that investors have so far ignored. But investors may be anticipating those output cuts will start to tighten oil supplies later in the year, Moore said.

The May contract trades at $50.82 a barrel, with the September contract at $55.90.

"The OPEC production cuts are going to take time to widdle away the build up in inventories," Moore said. "But if compliance is high, that could support prices looking further out."

In other Nymex trading, gasoline futures fell 0.73 cent to $1.17 a gallon. Heating oil rose 0.72 cent to $1.49 a gallon while natural gas for February delivery rose 7.7 cents to $4.92 per 1,000 cubic feet.

Buzz up!