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Oil stays below $35 after big drop overnight

Oil prices languished below $35 a barrel today in Asia as the deepening recession in US spurred investor concern over crude demand.

business Updated: Feb 19, 2009 02:36 IST

Oil prices languished below $35 a barrel on Wednesday in Asia as further signs the U.S. recession is deepening spurred investor concern over crude demand.

Light, sweet crude for March delivery fell 13 cents to $34.80 a barrel by midday in Singapore on the New York Mercantile Exchange. The contract on Tuesday fell $2.58 to $34.93.

Investors are doubting whether a $787 billion stimulus bill, signed on Tuesday by President Barack Obama, will be enough to jolt the U.S. out of its worst recession in decades.

General Motors Corp. and Chrysler LLC asked the government Tuesday for an additional $14 billion in aid. GM presented a survival plan that also calls for cutting a total of 47,000 jobs globally and Chrysler said it will cut 3,000 more jobs. GM, the world's largest automaker, said it could run out of money by March without new funds.

"That's 47,000 more people who will be driving less," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "It's mind-blowing. It makes you wonder whether these companies should survive."

Stock markets, which oil investors look to as a broad measure of sentiment about the economy, fell Tuesday as the New York Federal Reserve said its regional index of manufacturing activity is showing the sharpest contraction in February since it started the gauge in 2001.

The Dow Jones industrial average closed down 3.8 per cent, just above a 5-year low.

"The U.S. economy just keeps coming up with these bad reports, and that's definitely making market sentiment pessimistic," Rigby said.

The impact of the shrinking U.S. economy has reverberated throughout the world. Singapore said Tuesday its non-oil exports fell 35 per cent in January from a year earlier, while sales to the U.S. plunged 50 per cent.

"It shows Americans are tightening their belts and not spending," Rigby said.

Japan, the world's second-biggest economy, said Monday its economy shrank 3.3 per cent in the fourth quarter from the previous quarter, the worst performance since 1974.

OPEC has tried to bolster prices by cutting supplies, and the group's leaders have said they may slash output again at a meeting next month. The Organization of Petroleum Exporting Countries has announced 4.2 million barrels a day of productions cuts since September.

"You have OPEC trying to talk up the market, but that's not doing anything," Rigby said.

In other Nymex trading, gasoline futures fell 0.18 cent to $1.11 a gallon. Heating oil dropped 1.21 cents to $1.17 a gallon, while natural gas for March delivery slid 5.3 cents to $4.15 per 1,000 cubic feet.

In London, the March Brent contract fell 54 cents to $40.49 on the ICE Futures exchange.