Oil prices waver on skimpy crude inventory report

SIOUX FALLS, South Dakota -- Oil prices wavered near three-year lows Wednesday as investors weighed falling global demand and a government report showing an unexpected decline in U.S. crude inventories.

Light, sweet crude for January delivery fell 17 cents to settle at $46.79 a barrel on the New York Mercantile Exchange. Crude dipped to $46.26, the lowest level since May 20, 2005, when it traded at $46.20.

There are growing signs that crude, which has fallen $100 per barrel since mid-July, is rattling oil producing nations.

In Iran, state media reported Wednesday that President Mahmoud Ahmadinejad has acknowledged publicly for the first time that tumbling oil prices are gouging the country's fragile economy and will force his government into spending cuts.

The economic spillover in Iran began in the U.S., where Americans have drastically cut back on miles driven. Gasoline prices have plummeted to three-year lows.

"It's going to be a slow arduous process and we will see oil bottom well ahead of the end of the recession," said Jim Ritterbusch, president of energy consultants Ritterbusch and Associates. "But where and when that happens is still up for grabs."

The U.S. economy has been in a recession since for about a year, making the current downturn the longest in a quarter century, according to a panel of economists with the National Bureau of Economic Research.

Markets waiting the release later this week of U.S. unemployment figures may have had an indicator of what's to come Wednesday.

Non-farm private employment decreased 250,000 from October to November 2008 on a seasonally adjusted basis, according to the ADP National Employment Report.

Also on Wednesday, the U.S. Labor Department reported that worker productivity slowed in the summer while wage pressures increased, but both developments were not as bad as feared.

U.S. crude inventories had been rising as consumers and businesses cut back on fuel spending, but a Department of Energy report Wednesday helped support crude prices.

For the week ended Nov. 28 crude inventories fell by 400,000 barrels, or 0.1 percent, to 320.4 million barrels, which is 6.7 percent above year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.

Analysts had expected a boost of 2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Ritterbusch said any positive domestic supply news continues to be overshadowed by broader based economic issues on the demand side that aren't showing any side of turning around.

"These numbers came in a little more bullish than most people had expected, but they're certainly not capable of placing a bottom in this market," he said.

In London, January Brent crude closed unchanged from Tuesday's closing price of $45.44, a four-year low.

Oil trader and analyst Stephen Schork said in his daily publication, The Schork Report, that the trend is still bearish and "just because we are nearly as close to $40 as we are to $50, does not, in and of itself, mean we are near some theoretical 'bottom.'"

Investors have also been discouraged by growing evidence that China's economy, the world's fourth largest, may slow more than previously expected. Property prices in China have plunged, leading analysts to expect a drop in construction, an important driver of Chinese growth.

The World Bank last week cut its 2009 Chinese growth forecast to 7.5 percent, the slowest in almost two decades.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply has cut about 2 million barrels of oil production per day since September.

That has failed to halt the slide in prices, and now the cartel is asking non-OPEC producers for help.

OPEC President Chakib Khelil said Tuesday oil producers such as Russia, Norway and Mexico should "express their solidarity" with OPEC and reduce output.

Not all analysts are convinced that cooperation from non-OPEC nation would help.

"If Russia cuts production, it gives a bearish signal because it shows Russia is clearly concerned about short-term weak demand," Pervan said. "Russia only reacts under major duress."

Ritterbusch said he views an upcoming OPEC meeting in Aleria as a "non-event."

"Supply-side developments such as an OPEC cut aren't going to turn this market around," he said. "We've been driven lower now for almost five months by bad demand side news, so it's going to take favorable demand side news to turn us around."

In other Nymex trading, gasoline futures fell 1.86 cents to $1.0397 a gallon. Heating oil rose less than a penny to settle at $1.58.40 a gallon while natural gas for January delivery fell 7.7 cents to settle at $6.347 per 1,000 cubic feet.