Finance & Business World

Oil prices closed moderately higher Thursday, recovering from earlier losses, as rising stock prices vied with concerns about anemic energy demand.

Light, sweet crude for March delivery rose 12 cents to settle at $43.67 a barrel on the New York Mercantile Exchange.

Earlier in the session, oil plunged $3.80, or 6%, after the government said the nation’s supplies of crude and gasoline expanded much more than expected last week.

But crude regained ground in afternoon trade as investors took their cues from the stock market, where the major indexes pared losses despite a flurry of grim economic and corporate news.

"The stock market cut its losses and as it did, crude oil came back almost to break even," said James Cordier, founder of commodity brokerage OptionSellers.com.

Cordier added that Thursday’s rebound is partly due to "a great deal of participation by hedge funds that are looking for a home for money."

"The stock market is questionable at best," he said. "And crude looks cheap right now, even though the fundamentals are bearish."

EIA: In its weekly inventory report, the Energy Information Administration said the nation’s supplies of crude oil rose 6.1 million barrels in the week ended Jan. 16, while supplies of gasoline grew 6.5 million barrels.

Analysts were expecting both crude and gas stocks to have grown 1.9 million barrels last week, according to a survey by energy research firm Platts.

The inventory data highlighted concerns about waning demand for energy. As the global recession drags on, demand for crude and gasoline has faltered and the price of oil has cascaded from last year’s all-time high of $147 a barrel.

"The demand scenario continues to be poor," said John Kilduff, energy analyst at MF Global in New York. "The market structure is continuing to encourage gains in storage."

Supplies of distillates - used to make heating oil and diesel fuel - rose 800,000 barrels last week, according to the EIA report. That surprised analysts who had forecast a decline of 2.25 million barrels in distillate supplies.

Demand for distillates, meanwhile, rose last week to 4.08 million barrels per day from 3.65 million barrels per day in the previous week.

But the uptick in demand for distillates was due to increased heating oil consumption during last week’s "Arctic blast" and not a reflection of higher demand for diesel, Kilduff said payday loan.

At current levels, distillate supplies are 10% higher than they were a year ago. And during the "dead of winter," when demand for heating oil is usually at its peak, the 800,000 barrel increase is "telling about where this industry is in terms of demand," Kilduff added.

Overall, the nation’s swelling stockpiles of oil and gas are "emblematic of the current state of affairs in the economy, which is pretty bleak," he said.

This week’s report, which is normally released on Wednesday, was postponed until Thursday due to the observance of Martin Luther King Jr. Day on Monday.

Economy: A spate of weak economic data from the United States and China, two of the world’s largest oil consumers, also weighed on the market.

The U.S. Labor Department said weekly claims for unemployment rose to a 26-year high last week, rising 62,000 from the previous week to 589,000.

In addition to the weak reading on the labor market, the government said new home construction and building permits both tumbled to record lows in December.

The Commerce Department reported housing permits fell 10.7% from November to an annual rate of 549,000 in December. Housing starts fell 15.5% from November to an annual rate of 550,000.

In another sign of how global the current financial crisis is, China’s National Bureau of Statistics said Thursday economic growth in the country fell to a 6.8% annual rate last quarter, dragging down the pace of expansion for all of 2008 to a seven-year low of 9%.

Gas: For consumers, however, Thursday’s inventory report is "good news," Kilduff said. The oil and gas supply glut "will help keep a lid on gas prices a bit longer than we expected."

Retail gas prices, which plummeted along with crude oil, have been inching higher over the last nine days.

The national average price for a gallon of regular gas increased two tenths of a cent overnight to $1.85, according to a survey by the American Automobile Association.

Meanwhile, a separate report from the Department of Transportation showed Thursday that Americans drove 12.9 billion fewer miles, or 5.3% less, in November 2008 compared to the same month a year earlier. 

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