Oil settles below $40 on demand jitters
After climbing near $42 a barrel, crude prices tumble as investors remain wary of weak demand.
NEW YORK (CNNMoney.com) -- Oil prices fell Monday, erasing earlier gains, as the market remains confined to a narrow trading range by concerns about waning demand and ongoing production cuts.
U.S. crude for March delivery rose 61 cents to settle at $39.56 a barrel, marking its lowest close since Jan. 20, when oil settled at $38.74 a barrel.
Earlier in the session, prices rallied to a high of $41.77 a barrel after the Organization of Petroleum Exporting Countries said it continued to cut crude supply and hinted that more cuts may be coming.
But oil retreated in afternoon trade as investors refocused on the dour economic outlook and waning global demand for energy.
"The market lacks direction right now," said Stephen Schork, energy analyst and publisher of oil industry newsletter The Schork Report. "We're trading in a very tight consolidation range."
Crude prices have bounced between $40 and $42 a barrel over the last eight trading days. A dour jobs report pushed oil prices down $1 to $40.17 a barrel on Friday.
OPEC: Abdullah al-Badri, secretary-general of OPEC, told reporters that about 80% of the previously agreed-upon cuts were complete. In December, the cartel's member nations decided to cut 4.2 million barrels a day in oil production, but some countries that rely on oil exports have been reluctant to trim supply.
Analysts said that OPEC's aim was to stabilize the price of oil, which has leveled off since mid-December, but is down sharply from last year's all-time high above $147 a barrel. Still, al-Badri said that the group may take more action at its meeting scheduled for March 15.
"If we think we still need more action, I'm sure the conference will take more action to stabilize the market," al-Badri said, according to Reuters.
James Cordier, founder of brokerage OptionSellers.com, said OPEC could scale back production by another 1 million to 1.5 million barrels a day at its March meeting.
"OPEC is the catalyst for investors to come back into the market," Cordier said. But oil prices remain pressured by weak demand and a supply glut in the United States, he added.
"I think we'll continue to trade in a sideways direction," Cordier said.
Stimulus: The oil market is also focused on the potential benefits of a massive economic stimulus plan being debated in Washington.
Senate lawmakers are set to vote on a key measure Monday to end debate on the $827 billion plan, which could face a final vote Tuesday. The package is aimed at boosting the economy by funding infrastructure spending and lowering taxes.
If passed, the plan "could put a floor under the market," Cordier said. "But I'm not sure we'll get a roaring bull market."
Dollar: At the same time, a weaker U.S. dollar also helped support the price of oil.
The dollar was down 0.5% to $1.3011 versus the euro and fell 0.8% to $1.4907 against the pound.
A less robust greenback makes oil, which is priced in dollars, a more attractive asset for overseas buyers. And many investors view oil and other commodities as a hedge against inflation.
Gas: Meanwhile, retail gas prices rose overnight, marking the 12th consecutive increase.
The national average price for a gallon of regular gasoline increased to $1.924, up three-tenths of a cent from Sunday's price of $1.921.