Oil prices up on expectations for improving demand

AP News
Posted: May 21, 2012 4:06 PM
Oil prices up on expectations for improving demand

Oil prices rose as encouraging signs about the economy in the United States and China tempered concerns about Greece's debt crisis.

Benchmark oil rose $1.09 to finish at $92.57 per barrel Monday in New York. Brent crude increased $1.67 to $108.81 per barrel in London.

It was a rare bright day for oil in May, which is down almost 12 percent this month on concerns about slowing global economic conditions.

Two developments raised expectations that oil demand may improve in the United States and China, the world's two biggest economies.

A survey by the National Association of Business Economists released Monday showed economists are slightly more optimistic about a recovery in the job and housing markets. But they also expect consumer spending, business investment and gross domestic product to remain below historic norms.

In China, the Xinhua News Agency reported that Premier Wen Jiabao said over the weekend that more efforts should be devoted to helping growth. China's economic growth fell to a nearly three-year low of 8.1 percent in the first quarter and factory production fell in April to the lowest level since the 2008 global financial crisis. That has hurt demand for some commodities.

Yet, worries persist about Greece's economic future ahead of an election next month that could put opponents of austerity measures into power. Greece's bailout funding would be in jeopardy if the austerity measures are scrapped. The country might be forced to abandon the European common currency, which could spread financial uncertainty across Europe and hurt energy demand.

The market is also awaiting talks set for Wednesday about Iran's nuclear program. The U.S. and other Western countries believe Iran is developing a nuclear weapon, a charge that Iran denies. The lack of an agreement has raised concerns that oil shipments out of the Middle East could slow.

In other trading, natural gas prices fell 4.3 percent as moderate weather in some areas reduced the need for air conditioning. Natural gas dropped 13.3 cents to end at $2.609 per 1,000 cubic feet.

Energy analyst Stephen Schork said that consistently hot weather should boost demand for electricity. Many utilities have switched from coal to cheaper natural gas to power their generating stations.

"You have that template for demand _ now all you need is the demand. You need people to start running their air conditioning," he said.

Retail gasoline prices continue to fall ahead of Memorial Day weekend. The national average for regular gasoline dropped about 2 cents over the weekend to $3.689 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's about 18 cents less than it was a month ago and a year ago.

Heating oil rose 3.03 cents to end at $2.8603 per gallon and gasoline futures rose 5.06 cents to $2.9401 per gallon.