Oil prices dropped below $42 a barrel on Thursday in Asia as rising US crude inventories offset expectations a massive US stimulus package will revive growth and consumer demand.
Light, sweet crude for March delivery fell 54 cents to $41.64 a barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract rose 58 cents overnight to settle at $42.16.
The US House of Representatives passed a $819 billion stimulus plan last night aimed at spurring growth amid the worst recession in decades. The package, which includes tax cuts for individuals and businesses, should create or save more than 3 million jobs, President Barack Obama said after the vote. The Senate will begin debate on the bill next week.
But a fourth week of soaring oil inventories dampened expectations that the stimulus plan could spark crude demand.
The US Energy Department's Energy Information Administration yesterday said commercial crude oil inventories jumped 6.2 million barrels from the previous week, almost twice what was expected.
"We're seeing inventory numbers piling up, so that's going to keep the price of crude capped," said Tey Tze Ming, a trader at Saxo Capital Markets in Singapore.
Crude inventories have grown by more than 20 million barrels in the last month, stoking investor fear that consumer demand is suffering amid huge job losses in recent months.
The implementation of output cuts by OPEC has helped bolster prices, Tey said. The Organization of Petroleum Exporting Countries has announced 4.2 million of production cuts since September.