Oil gets a lift from stock selloff

Crude rebounds slightly as investors see it as a better investment after weak economic reports.

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By Kenneth Musante, CNNMoney.com

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NEW YORK (CNNMoney.com) -- Oil turned higher Thursday as economic jitters and a stock market selloff drew investors.

U.S. light crude for September delivery settled up $1.05 at $125.49 a barrel.

Crude prices had previously fallen more than $22 a barrel, sparking a long rally in the stock market, since setting an intraday record of $147.27 on July 11.

Stocks: However, economic reports released Thursday were bleaker than expected, suggesting that the purchasing power of the U.S. consumer may be waning, and causing the Dow Jones industrial average to drop more than 200 points.

The Labor Department said new unemployment claims rose much more than expected last week, while a second report revealed that home sales fell much more forecast in June.

"So much money had been flying into the stock market... we're starting to see that reverse," said James Cordier, founder of OptionSellers.com in Tampa, Fla.

However, Thursday's price increase was likely only a pause in an overall downward trend for oil, he added.

Bear market: High prices for crude oil and refined fuel made from crude oil have caused U.S. consumers to cut back on their travel expenditures over the past several weeks. Gasoline prices above $4 a gallon have been the key catalyst in the selloff.

"Clearly we're seeing some people thinking that the market was oversold... but there seems to be a general downward trend," said Rachel Ziemba, energy analyst with RGE Monitor.

One factor contributing to that trend was natural gas. The price of the active contract slid 56.8 cents, or nearly 6%, to $9.22 per thousand cubic feet, after a government report showed a bigger build in the nation's contract than analysts expected.

"If natural gas continues to fall, that will probably send crude lower," said Mark Waggoner, president of Excel Futures.

A decline in one energy commodity can signal a decrease in interest across other energy-related investments.

International supply: Concerns of international supply disruption, which have been one of the reasons for oil's record rise, continue to linger at the back of investors' minds.

Tensions between the West and Iran over the Mideast oil producer's nuclear technology development program remain high. On Wednesday, militants in Nigeria, Africa's largest oil producer, threatened to destroy a major pipeline.

Looking long term, a U.S. geological survey estimated that 90 million barrels of oil rest beneath regions in the Arctic Circle, enough to supply world demand for three years. However, the impact on the market was minimal according to analysts. To top of page

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