Oil ends slightly up, reducing most gains on demand worries

(Source: www.marketwatch.com)

NEW YORK (MarketWatch) -- Crude oil futures ended slightly higher Thursday, giving back early gains as markets grew more nervous about recent assumptions about an economic recovery ahead of the key April jobs report due Friday.

Upbeat reports on U.S. weekly jobless claims and retailers' April sales initially helped boost stocks and commodities in morning trade, with oil up as much as 4% to $58.57 a barrel.

But some comments from Federal Reserve Chairman Ben Bernanke that the Fed wouldn't continue stimulating the economy forever pressured both stocks and crude. In addition, investors have priced in a lot of good news already, lifting the odds that Friday's jobs report might disappoint.

Crude for June delivery ended up 37 cents, or 0.7%, at $56.71 a barrel on the New York Mercantile Exchange. Despite the loss, crude still has risen more than 6% this week.

Crude oil has recently benefited from hopes that a global economic recovery will boost demand. But some analysts said the rally is overdone, as inventories still remained at a high level.

"It looks as though the market is ready to ignore high inventories," said James Williams, an economist at energy research firm WTRG Economics. However, fundamentally, the oil market remained "bearish."

Crude inventories in the U.S., the biggest oil consumer, stood at the highest level in nearly 19 years, according to Wednesday's data released by the Energy Information Administration.

Meanwhile, total petroleum demand over the past four weeks was 7.9% lower than levels a year ago, the EIA report showed.

Helping oil rallied early in the session Thursday, the Labor Department said Thursday initial claims for unemployment benefits fell 34,000 to 601,000, their lowest level since January. See Economic Report on jobless claims.

Earlier, the government also reported that productivity rose in the first quarter as U.S. firms slashed their workforces, outpacing the drop in output.

Also helping lift sentiment, retailers reported better-than-expected April same-store sales on Thursday. See full story on retailers' sales.

And also easing concerns about the financial system, big banks undergoing so-called "stress tests" will have 30 days to develop plans for how they will raise any new required capital, the Federal Reserve and other bank regulators said late Wednesday. See full story on banks' stress tests.

The official results of the tests are expected to be released Thursday.

Natural gas inventories rise

Also in energy trading, June reformulated gasoline rose 3.75 cents, or 2.3%, to $1.6655 a gallon and June heating oil added 1.39 cents, or 0.9%, to $1.4852 a gallon.

Natural gas for June delivery rose 19.3 cents, or 4.1%, to $4.08 per million British thermal units.

U.S. natural-gas inventories rose 95 billion cubic feet in the week ended May 1, the Energy Information Administration reported Thursday. Analysts surveyed by Platts had expected a buildup of 89 billion cubic feet to 94 billion cubic feet.

Stockpiles were 491 billion cubic feet higher than last year at this time and 362 billion cubic feet above the five-year average.

Nick Godt is a MarketWatch reporter based in New York. Moming Zhou is a MarketWatch reporter based in New York.