Jamaica Gleaner
Published: Wednesday | April 29, 2009
Home : Business
Pandemic fears push oil prices down again

Oil prices fell for a second straight day yesterday on fears that the outbreak of swine flu would delay an economic recovery and further dampen energy demand.

Benchmark crude for June delivery fell 74 cents to $49.40 a barrel on the New York Mercantile Exchange. The contract Monday fell $1.41 to settle at $50.14.

Swine flu has killed more than 150 people in Mexico and a number of countries reporting cases has spread to Europe, the Middle East and Asia. About 50 cases have been identified in the United States (US), but no deaths.

Fears of pandemics have slowed the global economy in the past and officials with the World Health Organisation (WHO), while raising alert levels Monday, warned against overreacting.

Yesterday, countries including Canada, Israel and France, warned against any non-essential travel to Mexico.

Eeconomic disruption

"Border controls do not work. Travel restrictions do not work," WHO spokesman Gregory Hartl told reporters yesterday in Geneva, recalling the 2003 SARS epidemic that killed 774 people, mostly in Asia, and slowed the global economy. "There was much more economic disruption caused by these measures than there was public-health benefit."

A global economic downturn has already led to a severe tumble in crude prices. A barrel of oil cost about $100 less than a year ago.

The fear is that the outbreak could discourage people from travelling, lead to closed factories and further hurt the economy and oil consumption, said Addison Armstrong of Tradition Energy.

Prices bounced off lows of $48.55 yesterday on news that consumer confidence is moving higher. But gains this year have been weighed down by the amount of unused oil in storage, which have reached 19-year highs.

That trend is expected to continue when the government reports crude in storage today.

Analysts expect storage levels to grow by 1.8 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

They also are expecting a build of 900,000 barrels of gasoline.

Still, energy prices have been relatively stable, given all of the data pointing to a horrible economy in which consumers and industries are spending a lot less on energy.

"There are weeks of evidence that oil consumption is down and will remain down and it hasn't mattered," said oil analyst and trader Stephen Schork.

Compared with 2008, drivers are still getting a big break at the pump.

Gasolene prices, which were soaring a year ago toward $4 a gallon, have settled into a range as well at a national average of about $2.05 a gallon over the last month.

And yesterday there was a sliver of optimism in a couple of mixed economic reports.

The New York-based Conference Board said its Consumer Confidence Index rose more than 12 points to 39.2, up from a revised 26.9 in March. The reading marks the highest level since November's 44.7 and well surpassed economists' expectations for 29.5.

The huge jump follows a small increase in March, following a freefall in February. Still, the index remains well below year-ago levels of 62.8.

Housing crisis

"It's still a poor outlook," Armstrong said.

While home prices dropped sharply in February, it was the first time in more than two years that the decline did not set another record, suggesting the housing crisis may be bottoming.

The Standard & Poor's/Case-Shiller index of home prices in 20 major cities dropped by 18.6 per cent from February 2008, slightly better than the 19 per cent in January. The 10-city index slid 18.8 per cent, compared with 19.4 per cent the month before.

BP PLC, the second-largest European oil company, said yesterday that it returned to profit in the first quarter, beating analysts' forecasts by earning $2.56 billion.

In other Nymex trading, gasolene for May delivery fell 1.75 cents to $1.386 a gallon and heating oil lost less than a penny to fetch $1.32 a gallon. Natural gas for May delivery rose 4.7 cents, selling for $3.30 per 1,000 cubic feet.

In London, Brent prices fell 65 cents to $49.67 a barrel on the ICE Futures exchange.


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