Oil rises on short covering but supply worries loom
By Barani Krishnan
NEW YORK (Reuters) - Global oil prices firmed slightly on Thursday but not before U.S. crude hit a near six-year low and benchmark Brent pared gains on data showing fresh additions to already record-high U.S. oil inventories.
Oil prices had risen broadly earlier in the day after preliminary U.S. data showed weekly jobless claims at a near 15-year low, indicating further strength in the world's largest economy.
But crude futures in New York fell to an April 2009 bottom by midmorning, and only rose toward the close on short-covering.
Prices tumbled after a report by oil services firm Genscape showed fresh builds of 1.6 million barrels at the Cushing, Oklahoma delivery point for U.S. crude in the period of Jan. 23 through Jan. 27.
Inventories of U.S. crude were already at record highs for the week ended Jan. 23, according to government data issued on Wednesday. Last week's build alone was almost 9 million barrels, taking stockpiles to nearly 407 million, the highest level since the government began keeping such records in 1982.
"There are absolutely very few reasons to buy crude oil now and the only path I see from here is lower," said James Williams, energy economist at WTRG Economics in London, Arkansas.
U.S. crude (CLc1) settled up 8 cents at $44.53 a barrel, recovering from its session low of $43.58. Traders said some market bears cut back on their short positions after noting reductions in capital spending and exploration by U.S. oil firms reporting quarterly earnings.
Technical analysts, however, think it will be hard to defend U.S. crude at above $40 in coming weeks as technical selling pressure combines with dismal fundamentals to bear down on the market.
Benchmark Brent crude (LCOc1) finished up 66 cents at $49.13 a barrel, off its session high of $49.24.
The spread between the two crude oils (CL-LCO1=R) was its largest since Dec. 29, with Brent fetching a premium of more than $4.50 a barrel due to the weaker fundamentals in U.S. crude.
The current "contango" market structure in both Brent and WTI, where forward month contracts are pricier to nearby oil, is also giving traders an incentive to short prompt crude and buy forward contracts for storage in the hope of delivering those for a profit later.
Oil prices have tumbled about 60 percent since June, with losses accelerating from November onward when the Organization of the Petroleum Exporting Countries refused to cut its output to shore up prices.
(Additional reporting by Claire Milhench in London and Henning Gloystein in Singapore; Editing by Dale Hudson, William Hardy, Chris Reese and Diane Craft)
