Oil prices hold above $40 with aid package pending

NEW YORK — Oil prices rose Tuesday as traders weighed production cuts by OPEC against a deteriorating global economy that they expect to push demand, and prices, even lower.

There was some encouraging news from the housing sector, which helped boost confidence on the New York Mercantile Exchange, where traders looked to Washington for clues about the pending $885 billion stimulus plan.

Light, sweet crude for March delivery rose 70 cents to settle at $40.78 a barrel on the New York Mercantile Exchange.

Production cuts by OPEC may be all that is supporting prices right now, but supply issues no longer dominate the market as they once had. Falling demand will push crude closer to the $30 range, said Addison Armstrong, director of market research at Tradition Energy.

"We have really bleak prospects for our economy right now," Armstrong said.

The Organization of the Petroleum Exporting Countries promised last year to cut crude production by 4.2 million barrels a day. OPEC in the past has cheated on announced production cuts to keep oil money flowing, but so far that hasn't happened to the degree that was expected, Armstrong said.

Still, signs that the world's biggest economies are struggling means that demand for oil will weaken, he said.

China reported Monday that some 20 million workers have lost their jobs, while Hong Kong-based brokerage CLSA published a survey that said Chinese manufacturing shrank in January for the sixth consecutive month.

The same thing is happening in the U.S. The government recently reported that the economy slowed nearly 4 percent last year and that that slide could accelerate at the beginning of this year.

That has led to growing inventories of unwanted crude with industries cutting production and drivers cutting their miles on the road. A report Tuesday by the American Petroleum Institute, the industry's trade association, is expected to show that oil stocks rose 2.9 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

U.S. Energy Department's Energy Information Administration reports its inventory data on Wednesday.

The data is expected to show that US crude inventories rose by 2.5 million barrels in the week ending January 30, according to a Thomson Reuters poll of analysts.

Oil stocks have grown more than 20 million barrels in the last four weeks, evidence the nation's worst recession in more than 25 years may be deepening.