Oil holds near $40 after US oil stockpiles rise

Oil slipped slightly lower but held close to $40 a barrel on Thursday as investors anticipated more bleak economic data out of the world's biggest fuel consumer.

The outlook for more huge job losses in the United States darkened the demand prospects.

A global financial slowdown has cut oil demand and swollen fuel stocks, knocking more than $100 a barrel off the price of crude since its July 2008 peak of $147.

US crude inventories jumped by 7.2 million barrels to an 18-month high last week, data from the US Energy Information Administration showed, twice what analysts expected and the sixth straight weekly rise.

US light crude for March delivery fell 15 cents to $40.17 a barrel at 04.55 UAE time. London Brent crude for the same month gained 58 cents to trade at $44.73 a barrel.US crude has been locked between $39 and $49 a barrel for the past two weeks.

"The market is just waiting for non-farm payrolls in the US and Trichet's speech later today. The markets are poised to see how things develop," said Nimit Khamar, an analyst with Sucden Financial in London.

"A sustained rally is not likely given the lingering concerns of demand."

European Central Bank president Jean-Claude Trichet is set to give a news conference at 05.30pm UAE time, following the ECB's 04.45pm UAE time, interest rate announcement. The bank is widely expected to leave rates unchanged at two percent.

Oil losses have been limited by signals this week from the Organization of the Petroleum Exporting Countries that it may cut oil production further in an attempt to bolster the market.

OPEC, worried that the global economic downturn is reducing oil demand and pressuring prices, has promised to reduce oil production by a total of 4.2 million barrels per day (bpd) from levels seen in September.

World demand for oil is expected to fall for a second year in 2009, but some analysts believe it will bottom out in the middle of the year. Oil inventories are high, pointing to a supply surplus.

Stocks in the Organisation for Economic Co-operation and Development (OECD), a key indicator for OPEC, at the end of November equalled 56.4 days of demand, higher than the 52 days OPEC wants to see. (Reuters)