Oil slides toward multiyear lows

COLUMBUS, Ohio (AP) - Oil prices slid closer to a new multiyear low Thursday because of growing doubts that the $789 billion stimulus package will reinvigorate the economy and demand for energy.

Retail gas prices, meanwhile, reached a new high for 2009 on Thursday and appeared headed back to $2 a gallon as refiners cut back on production.

Light, sweet crude for March delivery fell $1.04 to $34.90 a barrel on the New York Mercantile Exchange. The contract fell $1.61 overnight to settle at $35.94 after a government report on Wednesday showed that crude inventories jumped much more than expected.

There were also more signs of economic weakness.

The number of people requesting first-time unemployment benefits dropped slightly last week, but remained near a 26-year high as companies lay off thousands of workers amid a deepening recession. The Commerce Department said the number of initial jobless benefit claims dropped to a seasonally adjusted 623,000, from an upwardly revised figure of 631,000 the previous week. The latest tally still was above analysts' expectations of 610,00 claims.

The 631,000 figure was the highest number since October 1982, when the economy was emerging from a steep recession, though the labor force has grown by about half since then.

In a sign that laid-off workers are having difficulty finding new work, the number of people claiming benefits for more than one week rose to 4.81 million from 4.78 million, the highest total since records began in 1967. The continuing claims data lags the new claims numbers by one week.

Retail sales surprised analysts by rising 1 percent in January, reversing a six-month trend. Analysts said the rise was unlikely to last though and that much of the increase was due to rising gasoline prices.

Moving with lightning speed, the Democratic-controlled Congress and White House agreed Wednesday on a compromise $790 billion economic stimulus bill designed to create millions of jobs. Obama could sign the measure within days.

Jim Ritterbusch, president of Ritterbusch and Associates, said it is unclear how much oil will benefit from the stimulus package and the Treasury Department's plan announced earlier this week to spend more than $1 trillion to help remove banks' soured assets from their books and unclog the credit markets.

"Just like the stock market, there's a feeling of the malaise because of a lack of definition," he said.

He said he is looking for oil prices to retest multiyear lows of $32.70 reached in January.

While oil prices have been sliding, gas prices have been on the move. Prices at the pump rose 1.2 cents overnight to $1.95 nationwide, the highest level since Thanksgiving, according to auto club AAA, the Oil Price Information Service and Wright Express.

Prices are 34 cents higher than they were when they bottomed on Dec. 31, but still $1.02 below year-ago levels.

The Energy Information Administration said Wednesday that crude inventories for the week ended Friday jumped 4.7 million barrels to 350.8 million barrels, surpassing the expectations of analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., who expected a boost of 3.4 million barrels. Including last week's buildup, crude inventories have increased by more than 30 million barrels in the past five weeks.

Oil analyst Stephen Schork said crude levels are at their highest point in more than a year and approaching the record level of 391.9 million barrels.

Gasoline inventories last week, however, slipped by 2.6 million barrels, or 1.2 percent, and demand for the four weeks ended Friday rose 0.1 to 8.8 million barrel a day, suggesting that more people may be spending money on fuel. Analysts expected stockpiles of the motor fuel to rise by 900,000 barrels.

U.S. refineries ran at 81.6 percent of total capacity on average, a drop of 1.9 percent from the prior week. Analysts expected capacity to slip to 83 percent. Refiners took in 214,000 fewer barrels of crude last week and gasoline production fell, the EIA reported.

The companies that own refineries are seeing the same dour headlines about job losses, and have slashed production as they try do match supply with demand. They also have curtailed production for maintenance typically performed this time of year.

Tom Kloza, chief oil analyst at Oil Price Information Service, said his forecast is for gas to hit $2 to $2.50 a gallon. He said gasoline now is nearly $20 a barrel above crude prices east of the Rocky Mountains and nearly $40 in California.

But he said the high refinery margins for gasoline will not last.

In other Nymex trading, gasoline futures rose 2.75 cents to $1.2973 a gallon, while heating oil rose 1.16 cents to $1.328 a gallon. Natural gas for March delivery fell cents to $4.432 per 1,000 cubic feet.

In London, the March Brent contract fell 4 cents to $44.24 on the ICE Futures exchange.
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Associated Press writers Jake Neubacher in Vienna, Alex Kennedy in Singapore, and Christopher S. Rugaber and Marcy Gordon in Washington contributed to this report.