by Chris Kahn
The Associated Press
Oil prices rose Wednesday even though the government reported that the nation is consuming less than it has in years and inventories are bloated with the most surplus crude in nearly two decades.
Energy prices have stabilized well below the levels reached in recent years, however, and gasoline has been largely stagnant since rising above $2 a gallon for the first time this year in late March.
Benchmark crude for June delivery gained $1.05 to settle at $50.97 a barrel on the New York Mercantile Exchange. In London, Brent prices increased 84 cents to $50.83 a barrel on the ICE Futures exchange.
Given another rise in crude inventory levels reported by the government Wednesday, prices were resilient.
"We’ve had a lot of bad news, and prices just don’t want to sink," said Mike Zarembski, senior commodity analyst at brokerage OptionsXpress Inc.
Oil in recent weeks has followed stock markets, with many traders looking for hints of an economic rebound that would give energy prices a boost. The Dow Jones industrial average rose more than 200 points Wednesday.
The Energy Information Administration reported Wednesday that oil inventories jumped by 4.1 million barrels for the week ended April 24 to 374.7 million barrels. That’s more than twice what was expected by analysts, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
U.S. stores of crude have reached levels not seen since Aug. 31, 1990. Government data also show that petroleum consumption is down to 18.4 million barrels a day, the lowest since May 28, 1999.
It’s no surprise that U.S. storage houses are swelling with a huge surplus of crude. They’ve been growing for months. The drop in gas inventories was unexpected, however. Refineries continue to cut back on operations, in part to match supplies with plunging demand.
The EIA said refineries cut back last week, operating at 82.7 percent of capacity.
That will likely lead to higher gas prices eventually, but its highly unlikely motorists will pay anything close to what they did last summer.
Overall, the growing oil stocks have helped keep gas prices relatively flat — a welcome sign a month before Memorial Day, the traditional start of America’s summer driving season. In 2008, gas prices were surging each week by about 7 cents a gallon, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.
Since rising above $2 for the first time on March 26, the national average retail price for a gallon of gas is up just a nickel.
"This has been the quietest April since 2002" in terms of gas price fluctuations, Kloza said.
Gas is still expected to inch higher, however, up to $2.25 a gallon at the peak of the summer driving season.
On Wednesday, retail gas prices rose less than a penny overnight to a new national average of $2.05 a gallon according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of gas is $1.557 a gallon cheaper than it was at this time last year.
Nevertheless, travel researchers say people are being much more conservative with their vacation plans, despite relatively cheaper gas. If they’re hitting the road this summer, they’re going to stay a lot closer to home than in years past.
Crude prices also are behaving differently after their dramatic rise and fall last year. Oil has hovered around $50 a barrel in April, about half of what it fetched last year at this time.
Experts said worries about the economy and the swine flu virus recently have depressed crude prices somewhat, though not enough to pull oil from the coattails of equities markets.
The swine flu virus is suspected in 159 deaths and 2,498 illnesses across Mexico, the epicenter of the outbreak. Germany and Austria confirmed cases of swine flu Wednesday, becoming the third and fourth European countries to do so. As the United States reported the first swine flu death outside of Mexico and the flu has now spread to at least 10 states, from New York California.
The commandant of the Marine Corps said a Marine in southern California might have the illness and 39 Marines were being confined on their California base.
Egypt slaughtered all of its pigs and the World Health Organization said Wednesday the swine flu outbreak is moving closer to becoming a pandemic.
"People aren’t calling this a pandemic yet, but it will still have a huge effect if people react as if it were," said Michael Lynch, president of Strategic Energy & Economic Research. "If it scares people away from going on vacations, it could have at least a mild depressing effect" on the economy.
On Wednesday, the government reported that the economy shrank at a worse-than-expected 6.1 percent pace at the start of this year. The Commerce Department report said a rebound in consumer spending was overwhelmed by cutbacks in business spending and the biggest drop in U.S. exports in 40 years.
In other Nymex trading, gasoline for May delivery increased 3.38 cents to $1.4315 a gallon. Heating oil for May delivery rose 1.23 cents to $1.3290 a gallon.
Natural gas for June delivery was up less than a penny to $3.444 per 1,000 cubic feet.
Associated Press writers Ernest Scheyder in New York, George Jahn in Vienna, Austria and Alex Kennedy in Singapore contributed to this report.