Weatherford Democrat

AP Story Section

January 20, 2009

Oil markets suggest broad pessimism over demand

By Sandy Shore

AP Energy Writer

DENVER (AP) — Crude futures for March and beyond sank Tuesday revealing broad pessimism in the markets over energy demand for the foreseeable future.

A limited number of traders took advantage of the February contract which expires Tuesday, the only month that saw prices rise. Crude prices have fallen as the places to store it have thinned, with millions of barrels of unwanted oil now being stored at sea or in facilities on land.

Light, sweet crude for February delivery rose $2.23 to settle at $38.74 per barrel on the New York Mercantile Exchange. Trading in the final day of the contract was very light, leading to price swings close to $7.

The March contract, where the vast majority of trading took place, fell $1.53 to settle at $40.68.

The phenomenon is what traders call a ‘‘contango,’’ where oil that must delivered in the next few weeks is cheaper than the contracts in the months ahead.

‘‘This is probably the strongest contango we’ve ever had,’’ said Michael Lynch, president of Strategic Energy & Economic Research.

The February contract has fallen about one-third in two weeks because of burgeoning supplies at Cushing, Okla., the delivery point for the Nymex.

That has yet to payoff for motorists, with the cost of retail gasoline continuing to rise. Gas prices have risen for weeks after bottoming out on Dec. 31 at about $1.61 a gallon.

In what may be a maddening turn for consumers, gas costs about 17 cents more per gallon than it did a month ago, though a barrel of oil costs $3.60 less.

Gas prices nudged up again overnight, with crude falling so fast that refined products like gasoline have yet to catch up. Refiners are also taking production off line with Americans driving billions fewer miles than they did last year.

Production cuts by the Organization of Petroleum Exporting Countries have yet to create equilibrium in an oil market gripped by recession. Crude prices have been in a tailspin since July.

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