NEW YORK (AP) – Oil prices dipped below $41 a barrel Wednesday as the government reported that U.S. storage facilities continue to swell with a glut of cheap crude.

Light, sweet crude for March delivery dropped 46 cents to settle at $40.32 a barrel on the New York Mercantile Exchange. Gas prices rose to nearly $2 a gallon, the highest since late November.

Traders snapped up gasoline stocks on the expectation that refineries will temporarily shut down operations because of withering demand and as part of seasonal maintenance, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

“That means gas supplies are going to get a little bit tighter,” Kloza said.

Elsewhere, traders found little to like from mixed financial reports, which showed that while consumers continue to cut back on spending, the economy might not be as bad off as expected.

The Institute for Supply Management reported Wednesday that the nation’s service sector shrank for the fourth straight month in January, but at a slower pace than the previous month.

The trade group said its service sector index rose to 42.9 in January, from December’s downwardly revised reading of 40.1. Analysts expected a January reading of 39.

The index, which is based on a survey of hotels, travel, retail, health care, mining and other industries, signals economic growth for readings above 50. A reading below 50 indicates contraction.

Elsewhere, there were new signs that consumers are holding onto their wallets.

Costco Wholesale Corp. said its earnings for the quarter will “substantially” miss Wall Street estimates due to poor sales and margins. Eastman Kodak Co. is bracing for a 12 percent to 18 percent slump in sales this year because of the economic downturn.

Meanwhile, the Conference Board, a private research group, said that employers advertised 1 million fewer jobs online in January than two months ago. That’s the sharpest drop since the group started tracking online job ads in 2005.

U.S. inventories are now brimming with surplus crude as millions of laid off workers take their cars out of the daily commute.

Crude inventories jumped to 346.1 million barrels, according to an Energy Information Administration report on Wednesday. That’s up 2.1 percent from last week. Crude supplies are running at a surplus of 50.3 million barrels from the same period last year.

“We cannot reasonably expect to see a material downturn in crude supplies” with the U.S. economy steadily deteriorating, said energy analyst and trader Stephen Schork, writing in his Schork Report publication.

The Organization of Petroleum Exporting Countries has said it would slash crude production by 4.2 million barrels per day to help siphon off the world’s vast oil inventories and hopefully boost prices.

At the same time, however, oil analyst Antoine Halff said global demand will likely drop even quicker than he estimated last month, contracting by as much as 1.3 million barrels per day in 2009.

“Global trade is sinking faster than anyone expected,” he said.

China, for example, is struggling to overcome a plunge in demand for its textiles, toys and other consumer goods. The government says some 20 million migrant workers have lost their jobs.

“That’s huge, and it’s just the beginning,” Halff said. “People were bullish on emerging economies. But the numbers out of China show that factories are closing. There’s a rise in unemployment, and that will affect the social stability there.”

The national retail average price for a gallon of unleaded gas rose a penny to 1.90 a gallon, according to AAA, the Oil Price Information Service and Wright Express. That’s the highest average price for unleaded gas since Nov. 24, Kloza said. Gas cost about 22.8 cents a gallon above what it was a month ago, but about $1.077 below what it cost a year ago.

In other Nymex trading, gasoline futures stayed rose 5.14 cents to settle at $1.2184 a gallon, while heating oil added 0.16 cent to settle at $1.327 a gallon. Natural gas for March delivery gained 8.4 cents to settle at $4.597 per 1,000 cubic feet.

In London, the March Brent contract rose 7 cents to settle at $44.15 on the ICE Futures exchange.


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