Oil prices jump on Chinese demand hopes

Oil prices rose sharply Wednesday on hopes of strengthening crude demand in China, the world's second biggest energy consumer after the United States, analysts said. Prices also found support in news that crude oil inventories surprisingly fell last week in the United States and as stock markets rebound. Brent North Sea crude for delivery in April rallied 2.16 dollars to 45.86 dollars a barrel in late afternoon London trade. New York's main futures contract, light sweet crude for April, gained 2.84 dollars to 44.49 dollars. Prices picked up Tuesday, after plunging on Monday, as the market reconsidered worries about weak energy demand, and then extended gains on Wednesday. "Crude prices were higher on increased optimism the Chinese economy would recover swiftly from the current downturn following some positive economic news," Sucden analyst Nimit Khamar said. China's manufacturing activity contracted for a fifth straight month in February but the decline slowed, with the data falling just short of the boom-bust line. The Purchasing Managers' Index, or PMI, for China's manufacturing sector rose to 49 in February from 45.3 in January, the China Federation of Logistics and Purchasing said. "The Chinese PMI (showed) a marked improvement from the record low of 38.8 in November 2008," Khamar noted. "However, a reading of below 50 still indicates contraction." At the same time, traders digested news on Wednesday that the Australian gross domestic product (GDP) shrank 0.5 percent in the final three months of 2008, which fanned fears of a deepening global recession. Oil prices have tumbled since striking record highs above 147 dollars in July as a world economic slowdown has ravaged energy demand. On Wednesday, the US Department of Energy said US stockpiles of crude oil dropped 700,000 barrels during the week ending February 27. Analysts had forecast a rise of one million barrels. Data last week showed that the recession-hit American economy contracted by a worse-than-expected 6.2 percent in the fourth quarter of 2008. Crude prices plunged Monday after more alarming news in the financial sector sent markets into a tailspin, sparking fears of a deepening downward economic spiral. Investors were especially spooked by the US government's latest massive bailout package for insurance giant AIG worth 30 billion dollars. Global stock markets rebounded sharply on Wednesday but the gains reflected quick bargain hunting rather than any major change in sentiment, dealers said.