NEW YORK – Oil prices rebounded after dropping more than $1 a barrel Thursday as growing crude supplies and signs of slower economic growth led traders to test the $50 mark.
Light, sweet crude for the June contract rose 14 cents to $51.75 a barrel in afternoon trading on the New York Mercantile Exchange (search), after falling as low as $49.80 earlier in the day. On Wednesday, oil prices fell $2.59 to $51.61.
"Once the panic selling was over, the bargain hunters took over," said Ed Silliere, a broker at Energy Merchant Intermarket Futures in New York.
Crude prices dipped briefly below $50 about two weeks ago, then similarly rebounded.
"Fifty-dollar crude is like Dow 10,000 — it's a defense point, for sure," said Tom Kloza, director of Oil Price Information Service in Lakewood, N.J.
Heating oil fell less than a cent to $1.468 a gallon Thursday afternoon, while unleaded gasoline fell 2.64 cents to $1.5155. On London's International Petroleum Exchange (search), Brent crude for June rose 11 cents to $52.40 a barrel.
While oil futures are down about $4 a barrel since the start of the week, prices remain about 33 percent higher than a year ago.
Strong demand and concerns about limited excess production capacity have supported oil prices for the past two year. Fears of unplanned supply disruptions, whether from a refinery outage or a terrorist attack, have also kept energy traders on edge.
The recent down trend in oil prices persisted Thursday as the Commerce Department (search) said that the U.S. economy grew at an annual rate of 3.1 percent in the first quarter due to weaker consumer and business spending. High energy prices and rising borrowing costs are causing Americans to tighten their belts a bit. Gasoline at the pump averages more than $2.20 a gallon nationwide.
But as global crude oil supplies grow, prices for the remainder of 2005 should average lower than the more than $50 per barrel range experienced in the first quarter, Fitch Ratings said in an energy market overview released Wednesday.
The U.S. Energy Department (search) said Wednesday that inventories of crude oil in the largest consuming nation grew by 5.5 million barrels last week to 324.4 million barrels, or 9 percent above year-ago levels.
Unleaded gasoline supplies shrank by 300,000 barrels to 211.3 million barrels, but they remain 4.6 percent above year ago levels.
In remarks to small business leaders, President Bush on Wednesday said the United States needs to add refining capacity in order to curb rising imports and he urged using closed military bases as sites for new oil refineries. The Energy Department is being ordered to step up discussions with communities near such bases to try to get refineries built.
Prices had been falling since the start of the week, when Bush called on Saudi Arabia's Crown Prince Abdullah (search) to expand production, in a bid to ease U.S. gasoline prices that have shot above $2.20 a gallon.
Analysts say the Bush-Saudi meeting was a signal that both sides recognized that current high prices needed to be addressed, thus sending prices downward.
Saudi Arabia has outlined a plan to increase production capacity to 12.5 million barrels a day by 2009 from the current 11 million limit. Saudi Arabia now pumps about 9.5 million barrels daily and, if necessary, says it will eventually develop a capacity of 15 million barrels a day.