Oil Prices Back Above $90 a Barrel

By PABLO GORONDI AP – 3 hours ago

Oil prices rose Friday following the lead of higher stock prices in Europe as traders bought crude contracts ahead of the holiday weekend in the United States.

Light, sweet crude for February delivery was up 68 cents to $90.81 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Europe. It had fallen below $90 in earlier trading on worries that weakness in the U.S. economy could curb demand for oil.

The contract fell Thursday by 71 cents to settle at $90.13.

In London, Brent crude for March delivery rose 87 cents to $89.62 a barrel on the ICE Futures exchange.

European stock markets were mostly higher Friday, with London's FTSE-100 index up 114.9 points to 6,017.3 early afternoon. The CAC-40 index in Paris and Frankfurt's DAX were also higher.

Analyst Olivier Jakob of Petromatrix in Switzerland said price fluctuations showed the U.S. benchmark oil price has become a "pure derivative" of sentiment on Wall Street.

"The crisis of confidence on the economy is far from over," Jakob said in a research note. "The extremely high correlation seen yesterday between the Dow and oil needs to be taken as a new risk factor and developments on Wall Street to be watched closer than ever."

Concerns about the economy were stoked by a U.S. Commerce Department report Thursday that construction of new homes fell nearly a quarter in 2007, the largest drop in 27 years. Also, a Philadelphia Federal Reserve survey of regional manufacturing activity registered a negative 20.9 from a revised reading of negative 1.6 in December, coming in well short of expectations.

The data added to the negative economic sentiment that has been the market's dominant driver in recent days, pushing prices down nearly US$10 from their record over US$100 a barrel two weeks ago.

"It's one piece of bad news after another," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The worries about the U.S. economic slowdown, and of oil demand slowing down in the U.S. and other parts of the world, continue to weigh on the market."

The White House and Congress moved toward a rescue of the U.S. economy Thursday through steps that would include tax rebates. Federal Reserve Chairman Ben Bernanke endorsed the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy. He said he expects slower economic growth in 2008, but no recession.

"The good news, if you can call it that, is that the U.S. Federal Reserve recognizes the weaker economic outlook, and it looks like actions will be taken both by the Bush administration and the Fed to help bolster the economy," Shum said.

Meanwhile, the American Petroleum Institute, a trade group for oil and gas producers, said high prices cut demand for gasoline and oil in the fourth quarter. On Wednesday, the International Energy Agency cut growth predictions for world oil demand this year to 2.3 percent from a previous estimate of 2.5 percent.

Shum said that regardless of the health of the U.S. economy, the oil market would soon be heading into a period of softer demand.

"No matter how the U.S. economy turns out in the next few months, the global oil market will see softer demand when we go into February because peak winter demand would have passed and demand is typically weaker in the spring," Shum said.

Heating oil prices rose 2.07 cent to $2.5242 a gallon while gasoline prices added 2.75 cents to $2.2943 a gallon.

Natural gas futures added 9.1 cents to $8.172 per 1,000 cubic feet.