Oil hovers near $40 on mixed news

DENVER -- Oil prices floated just above $40 a barrel Thursday as investors eyed a growing surplus in U.S. crude inventories and worried about rising jobless claims and other disheartening economic news.

The Energy Department reported Wednesday that crude supplies are running at a surplus of 50.3 million barrels from the same period last year, keeping a lid on oil prices, although traders will try for higher ground.

"We recognize that sooner or later the market will tire of pushing against $40 and will try pushing higher," Stephen Shork wrote in his Schork Report.

Light, sweet crude for March delivery slid 16 cents to $40.16 a barrel in morning trading on the New York Mercantile Exchange.

Alaron Trading Corp. analyst Phil Flynn said prices could test the lower end of the trading range Thursday if the stock market remained under pressure.

"We can get excited about gold being higher today, can get excited about silver being higher, but when you have the stock market down, oil is going to have a hard time holding," he said.

The Labor Department reported the number of laid-off workers seeking jobless benefits rose last week to a seasonally adjusted 626,000, the highest number since October 1982 when the economy was in a deep recession.

The total compared with last week's 591,000 claims and was higher than analysts' expectations of 583,000.

The number of people remaining on the unemployment compensation rolls increased slightly to nearly 4.8 million, the most since records began in 1967.

Separately, the Commerce Department said factory orders, ranging from autos to computers, fell by 3.9 percent in December.

Layoffs sent more people to unemployment lines. Cosmetics maker Estee Lauder Cos. said it would cut 2,000 employees, or 6 percent of its work force, as part of a four-year restructuring program.

Retailers reported another round of lackluster sales figures for January; Cisco Systems Inc. and Deutsche Bank AG had gloomy quarterly earnings reports.

The government's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states fell by 195 billion cubic feet to about 2.18 trillion cubic feet for the week ended Jan. 30.

Analysts expected a drop of between 193 billion and 198 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Organization of Petroleum Exporting Countries has tried to reduce output by 4.2 million barrels since September, and the group's leaders have said the cartel could announce more production cuts at its next meeting in March.

In other Nymex trading, gasoline futures rose 1.11 cents to $1.2295 a gallon. Heating oil added 1.2 cents at $1.3390 a gallon, while natural gas for March delivery gained 3.3 cents at $4.631 per 1,000 cubic feet.

In London, the March Brent contract rose 66 cents to $44.82 on the ICE Futures exchange.