NEW YORK - Oil prices rose above $62 a barrel a day as traders eyed stock markets worldwide and after a report on the nation's manufacturing activity came in above expectations.
Light, sweet crude for April rose 50 cents to $62.29 a barrel in midday trading on the New York Mercantile Exchange. Brent crude also gained 59 cents, trading at $62.48 a barrel, on London's ICE futures exchange.
"Oil traders are torn. They want to be long on this market because demand is at all-time high and the ISM report came in above expectations, but macro economics are holding them back," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
The Institute for Supply Management reported Thursday that its manufacturing index registered 52.3 in February, up from January's reading of 49.3 and above Wall Street expectations of 50.
A reading above 50 indicates growth for the sector, while a reading below signals contraction.
On Wednesday, prices hit a two-month high following a U.S. government report that stockpiles of gasoline and distillates, which include heating oil and diesel fuel, dropped last week by a larger amount than analysts had forecast.
Traders, however, remain jittery after Tuesday's sharp fall in U.S. share prices, which may be a harbinger of an abrupt economic slowdown. The fall was triggered partially by a 9 percent drop in Chinese shares amid speculation that Beijing may take further steps to slow China's rapid growth.
U.S. markets fell again early Thursday. The Dow Jones industrials briefly dropped more 200 points to the 12,067 level in the opening minutes of trading after a halfhearted rebound on Wednesday.
U.S. crude inventories climbed 1.4 million barrels to 329.0 million barrels last week, the Energy Information Administration said Wednesday in its weekly report. But gasoline inventories fell by 1.9 million barrels to 220.2 million barrels, and distillate inventories fell by 3.8 million barrels to 124.5 million barrels. Both drops were a bit larger than most analysts were expecting.
Energy analyst Victor Shum, of Purvin & Gertz in Singapore said, however, that the stock market and economic concerns had contributed to slow trading in the oil market.
"I think in the near term we can expect a lot of volatility in the oil market," Shum said, noting continuing concerns over Iran.
Iran's persistent refusal to suspend its nuclear program has also been a driving force behind the energy market's advance.
Iran ignored an IAEA deadline last week to halt its nuclear program. Iranian Foreign Minister Manouchehr Mottaki reiterated Tuesday that his country would never again suspend uranium enrichment, a move the United States insists on for any negotiations with Tehran.
Vienna's PVM Oil Associates noted that "the bullish influence" generated by Wednesday's U.S. inventory figures "more than offset the adverse impact of data showing weaker than expected U.S. economic growth for the fourth quarter 2006 as well as concerns about the health of the global economy."
Meanwhile, natural gas prices dipped after a government report showed that supplies fell a little less than expected last week.
The Energy Department reported Thursday that natural gas supplies fell by 132 billion cubic feet to 1.733 trillion cubic feet last week, slightly lower than the estimate that analysts and traders polled by Dow Jones Newswire had been expecting. They had predicted a drop of 144 billion cubic feet to 1.721 trillion cubic feet.
Natural gas futures fell more than a penny to $7.287 per 1,000 cubic feet.
Flynn pointed out that traders are now focusing on the weather. On the one hand, the winter season is almost over and the demand for natural gas is likely to decline. However, a report this week from the National Oceanic and Atmospheric Administration warned that this summer's hurricane season could be more volatile than last year's.
A hurricane in the Gulf of Mexico could shut down natural gas production, putting a crunch on supply, Flynn said.
"We don't have the ability to import enough natural gas in liquid form to make up for a loss in production," he said. "As soon as winter is over, traders are going to start building in a hurricane premium into the price."
In other trading Thursday, heating oil futures under the new April contract lost more than 2 cents to $1.7574 a gallon, while gasoline futures fell more than a penny to $1.8851.
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Associated Press writers Tanalee Smith in Singapore and George Jahn in Vienna, Austria contributed to this report.
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