Oil Continues Rise Despite Highest Inventories in 19 Years
By wchung | 12 May, 2009

Investor hopes that the U.S. recession may have bottomed out propelled oil prices well above $59 a barrel on Tuesday.

Prices rose despite continued lack of demand, evidenced by U.S. crude stocks that are near 19-year highs and expected to climb further.

Benchmark crude for June delivery was up $1.02 to $59.52 a barrel by noon in European electronic trading on the New York Mercantile Exchange. On Monday, the contract fell 13 cents to settle at $58.50.

Oil prices have jumped from below $35 a barrel in February amid signs the pace of economic deterioration has slowed, setting the scene for an eventual recovery.

“The feeling is we’ve seen the worst of it, and the only way now is up,” said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. “Some of this is also a trading momentum play.”

Investors will be eyeing first quarter earnings figures this week from retailers including Wal-Mart Stores Inc. and Macy’s Inc., while the government reports retail sales for April.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, has been undermined by rising unemployment, which climbed to 8.9 percent in April.

“There’s still a lot of unemployment out there,” Rigby said. “Companies aren’t hiring yet, and that’s what would increase demand.”

Traders will also be watching the weekly petroleum inventory data for the week ended May 8 from the Energy Information Agency on Wednesday. Analysts expect inventories to increase by 1.4 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Crude stocks rose 600,000 barrels last week.

“Inventories are still going up,” Rigby said. “We’re not seeing an increase in crude demand, so there’s no pressure on supply.”

Vienna’s JBC Energy also spoke of an expected inventory build. “On top of this, another 90-100 million barrels of oil are estimated to be kept in floating storage,” it added.

In other Nymex trading, gasoline for June delivery was up marginally at $1.69 a gallon and heating oil added nearly 2 cents to fetch $1.52 a gallon. Natural gas for June delivery rose close to 7 cents to $4.37 per 1,000 cubic feet.

In London, Brent prices rose 70 cents to $58.18 a barrel on the ICE Futures exchange.

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Associated Press writer Alex Kennedy contributed to this report from Singapore.

5/12/2009 6:06 AM GEORGE JAHN Associated Press Writer VIENNA