Updated from 1:13 p.m. EDT

Oil prices rebounded in late-day trading Thursday after dropping below the $50 a barrel barrier earlier, as traders bought into the lower end of a long-term trading range of $50 to $55 a barrel. Reports that a tanker collision forced the closure of the Sabine shipping channel outside Houston were also cited as helping oil rebound from its early lows.

After tumbling more than $2.50 a barrel Wednesday, the crude June benchmark closed up 16 cents to $51.77 in Nymex floor trading. Gasoline prices held at $1.54.

Crude prices lost ground earlier in the day after U.S. inventory data showed crude supplies rising, and as the economy recorded its slowest quarterly growth in two years.

The U.S. economy grew in the first quarter by a 3.1% annual rate, the slowest in two years, as high energy prices, among other items, reined in consumer spending, the Commerce Department said Thursday.

Oil and gas markets were pulled down late Wednesday as traders and investors took profits amid growing concerns that markets are oversupplied.

The Energy Department reported a 5.5 million-barrel jump in crude inventories, the 10th increase in 11 weeks and much higher than the 400,000-barrel increase analysts were estimating. Gasoline inventories dropped by 300,000 barrels, much less than expected.

These data, coupled with more formal commitments from Saudi royalty to increase production as much as needed, were enough to send oil prices down more than 5% in the last three sessions.

"There sure is a lot of crude out there, the back month is currently trading at a $3.20 contango," meaning futures prices are progressively higher further out on the calendar, "reflecting the large amounts of crude in inventory," said John Kingston, director of oil at Platts.

But the bigger picture of why oil prices remain high, Kingston says, is because there are too many long positions and not enough shorts. "How much is this affected by funds? The answer is a lot. Pension funds can really only go long and we need more short selling to get prices down," Kingston said.

Further weighing on prices was President Bush's speech Wednesday before the Small Business Administration, in which he reiterated his argument for an energy bill that would ease many regulatory restrictions for the building of new refineries, liquefied natural gas terminals and for drilling in the Alaska National Wildlife Refuge.

Bush said his goal was to release the bottleneck of U.S. production and refining in order to achieve less dependence on energy imports.

Shares of energy companies slid as oil prices retreated.

Exxon Mobil

(XOM) - Get Report

, which posted

disappointing results Thursday morning, was recently down 3% to $56.63;

Marathon Oil

(MRO) - Get Report

dropped 2.29% to $46.17;

Occidental Petroleum

(OXY) - Get Report

decreased 2.59% to $67.74.

Trickle-Down Economics

In earnings news, analysts are buzzing with enthusiasm over the oil and gas services sector, as so many companies that sell gear to oil and gas producers have realized stronger earnings due to improved pricing power. The enormous amounts of cash accumulated by the big oil producers in the past two quarters has trickled down into the pockets of equipment and service providers such as

Schlumberger

(SGP)

and

Baker Hughes

(BHI)

, in the form of capital expenditures on improving and expanding exploration and drilling.

Land drillers are enjoying the same momentum, seen by an increase in their day rates.

Patterson-UTI

(PTEN) - Get Report

reported net income for the first quarter increased almost twofold to $59.7 million, or 35 cents per share, from $20.7 million, or 12 cents per share. Revenue was up 60 percent to $350.6 million, compared with $218.8 million a year ago. That exceeded analysts' estimates of 31 cents per share, polled by Thomson Financial.

Patterson-UTI said its major strength came from the ability to raise day rates by 30%, to $5,070.

"As customer demand for our contract drilling services has continued to increase and available land drilling rigs have become scarce, we have increased the pace of our rig activation efforts," said the company's CEO Cloyce A. Talbott in a statement. "The results for the quarter continue to demonstrate the earnings leverage we are able to achieve as rig utilization and pricing increase," added Chairman Mark S. Siegel. Despite the strong earnings, shares dropped 2.9% to $23.90.

Nabors

(NBR) - Get Report

, another land driller, said net income was $127.4 million, or 80 cents per share, up from $71.7 million, or 46 cents per share, a year earlier, as demand for rigs continued to be strong in the face of limited supply, the company said. Revenue was $797.5 million, up from $609.1 million last year. Analysts polled by Thomson Financial had expected earnings of 75 cents per share. Still, shares declined 2.27% to $54.20.

Other major oil producers posted slight declines.

ChevronTexaco

(CVX) - Get Report

fell 1.1% to $51.43 in recent trading and

ConocoPhillips

(COP) - Get Report

dropped 0.35% to $103.34.