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Oil Prices Resist the World’s Recession Trend

In recent months, oil prices plunged as consumers curtailed fuel use around the world, with some analysts predicting that the dire economic situation would cause oil to fall to $20 a barrel or less.

But in a twist, oil prices have stabilized at close to $50 a barrel. While prices may have fallen by two-thirds since their peak last summer, oil remains expensive by historical standards.

The resilience shown by the oil markets is not because of any improvement in the global economy or rise in oil consumption. Global demand remains on course for its steepest drop since the early 1980s, and oil inventories are at their highest levels in 19 years.

Instead, analysts said, oil is once again being sought by investors as a refuge against a slumping dollar and rising inflation. Stabilization of the oil price is also a victory for the OPEC cartel, which has succeeded in cutting output sharply to match lower demand.

After helping to drive prices to record levels last summer, investors had deserted oil markets in the wake of the financial crisis, in a frantic flight to cash. Oil, which peaked above $140 a barrel in July, tumbled to $33 a barrel in December.

But oil futures in New York have since rebounded and have been fluctuating between $40 and $50 a barrel. Oil settled at $48.85 a barrel on Wednesday, up $2.34. This week, despite a broad swoon in the markets, oil never fell below $45 a barrel.

As a result, American drivers should expect to see higher prices at the pump this summer, when driving is at its peak. Gasoline prices could rise to an average of $2.23 a gallon this summer, according to government estimates. Prices had fallen as low as $1.60 a gallon in December but have been holding above $2 a gallon for several weeks.

Serious questions loom over the global economy that would suggest lower, not higher, prices. Unemployment is rising sharply in the United States, the Chinese economy is sputtering and its exports are falling, Europe is stagnant and Japan is contracting. The World Bank forecasts that the global economy will shrink by 1.3 percent this year, the first decline in global output since World War II.

“At some point, you’d think that reality has to set in,” said Tom Bentz, a senior energy analyst at BNP Paribas in New York. “All the news is pretty negative, and certainly demand continues to take a hit. And yet prices are still hanging on.”

The action of oil producers has been critical in providing a floor for prices. Members of the Organization of the Petroleum Exporting Countries have shown uncharacteristically strong discipline in recent months in sticking with their pledges to reduce output.

Saudi Arabia and other producers have slashed their overall production by about 3.5 million barrels a day since September, according to estimates by the Middle East Economic Survey and others, amounting to 75 percent of their commitments to reduce production.

OPEC’s success has provided an opening for investors to renew their bets on oil prices. The perception remains well ingrained in the market that oil supplies, while plentiful today, may prove insufficient once demand picks up again.

Unrest in Nigeria, where crude oil exports have again been interrupted, is also lending support to the market.

“Investors have come back, yes, but not in a huge way,” said Roger Diwan, a managing director at PFC Energy, a consulting firm. “One of the main reasons that oil is at $50 is that you had a sharp curtailing of supply.”

Investor enthusiasm for oil could prove to be ill-timed. In the United States, the world’s biggest consumer of oil, demand is down sharply, pushing up commercial oil stocks, which have now reached their highest level since 1990.

China is faring only marginally better. Because of a $585 billion stimulus plan, the Chinese economy is projected to grow 5 to 7 percent this year, according to various estimates. But that is less than half the country’s recent growth rate, and not enough to lift the rest of the Asian economies, according to a report from PFC Energy this month.

“This is a measure of just how abruptly the world economy has fallen in recent months, and how dire and uncertain its future prospects have become,” PFC said in a recent report. “De-globalization may already have begun.”

Oil demand is expected to tumble this year. In its latest forecast, the International Energy Agency, an adviser to industrialized nations, expects oil consumption to fall 2.4 million barrels a day this year, or 2.8 percent, to 83.4 million barrels a day, the steepest decline since the early 1980s.

Prices could yet fall if the economy weakens further or if the stimulus measures adopted by the United States and other nations fail to take hold.

“The market is trying to work out whether the economy is improving,” said Costanza Jacazio, an energy analyst at Barclays Capital.

Some experts also fear that even at today’s prices, oil companies will slash their investments in new production. Once the economy picks up, say in 2010 or 2011, these analysts predict that another price spike is likely.

“It makes you wonder how much longer we can hang on before another downdraft,” said Mr. Bentz of BNP.

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