Oil hovers above $40 as investors eye US earnings

SINGAPORE: Oil prices hovered above $40 a barrel on Monday in Asia as investors looked to key U.S. corporate results this week for indications of the health of the world's largest economy and demand for crude.

Light, sweet crude for February delivery was down 55 cents at $40.28 barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract on Friday fell 87 cents to settle at $40.83.

Steel producer Alcoa, chip maker Intel and biotech company Genentech are expected to report fourth quarter results this week, giving investors a gauge of how deep the current recession may be.

``Given that we're likely to see quite a few rather poor fourth quarter earnings reports, downward pressure will continue to be exerted on oil,'' said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. ``Worries about the macroeconomic outlook will continue to constrain oil.''

Oil prices fell 17 percent last week, weighed down by fears that rising U.S. unemployment will undermine crude demand.

The Labor Department said Friday that employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. The nation's unemployment rate jumped to 7.2 percent, the highest since 1993.

Crude prices have fallen despite a three-week conflict between Israel and Hamas in Gaza, a dispute between Russia and Ukraine that has shut off or disrupted natural gas supplies to more than a dozen European nations, and diminished crude exports from the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply.

``We have these other factors that will support oil,'' Shum said. ``Most likely, we won't see a big downward spiral despite the poor earnings reports.''

Prices of futures contracts for later this year suggest investors expect oil to recover. The March contract trades near $46 a barrel while the April contract trades above $49.

``The expectation is that pricing will regain strength, and it's not a question of if but when,'' Shum said.

In other Nymex trading, gasoline futures rose 0.40 cent to $1.12 a gallon. Heating oil gained 1.43 cents to $1.54 a gallon while natural gas for February delivery jumped 4.9 cents to $5.61 per 1,000 cubic feet.

In London, February Brent crude rose 3 cents to $44.45 a barrel on the ICE Futures exchange.