Oil near $40 as market digests Bernanke comments

By Alex Kennedy, Associated Press Writer
Oil near $40 as investors weigh Bernanke comments, dismal US economic news

SINGAPORE (AP) -- Oil prices hovered around $40 a barrel Wednesday in Asia as investors mulled optimistic comments from the top U.S. central banker against more bleak news that showed a deepening recession.
Benchmark crude for April delivery rose 9 cents to $40.07 a barrel by late afternoon in Singapore on the New York Mercantile Exchange. The contract rose $1.52 Tuesday to settle at $39.96.

Federal Reserve Chairman Ben Bernanke told Congress on Tuesday the worst recession in decades might end this year, and that regulators aren't planning to nationalize banks.

Investors, battered for months by news of massive layoffs and huge bank losses, took heart from the comments.

The Dow Jones industrial average rose 3.3 percent Tuesday, a day after falling to its lowest close since May 7, 1997.

"Bernanke's comments provide some optimism," said Clarence Chu, a trader with Hudson Capital Energy in Singapore. "If the economy is going to turn around by the end of the year, demand for oil should go up."

Investors brushed off more dismal news about the U.S. economy.

The New York-based Conference Board said Tuesday that its Consumer Confidence Index plummeted more than 12 points in February to 25, the lowest since it began in 1967 and well below the expectations of economists. A year ago, the consumer confidence reading stood at 76.4.

The Standard & Poor's/Case-Shiller U.S. National Home Price Index on Tuesday showed home prices tumbled by 18.5 percent in December, the sharpest annual rate on record. Prices are now at levels not seen since the third quarter of 2003.

"People are now expecting bad news," Chu said. "Bad news isn't new anymore."

Production cuts of 4.2 million barrels a day by the Organization of Petroleum Exporting Countries has helped bolster prices amid the plunge in demand.

OPEC's leaders, who have said recently that they would like prices to rise to $70 a barrel, will likely reduce output quotas by at least another 500,000 barrels a day at a meeting on March 15, Chu said.

"Forty dollars isn't good enough for most OPEC countries," Chu said. "Their budgets are in trouble if oil stays at forty dollars."

Investors will also be watching crude inventory numbers for signs of rising oil demand when the Energy Department releases its report Wednesday.

Analysts expect crude stocks for the week ended Feb. 20 grew by 2.25 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The department said last week that inventories fell by 200,000 barrels after rising more than 30 million barrels in about the last two months.

In other Nymex trading, gasoline futures fell 0.47 cent to $1.08 a gallon. Heating oil dropped 1.57 cents to $1.19 a gallon, while natural gas for March delivery slid 2.3 cents to $4.21 per 1,000 cubic feet.

Brent prices fell 8 cents to $42.42 on the ICE Futures exchange in London.