Updated from 3:20 p.m. EDT

Oil prices fell below $50 a barrel Tuesday, as concerns about swelling supplies and sub-par economic growth retook the upper hand.

The June crude benchmark closed down $1.42 to $49.50 in Nymex floor trading. Gasoline prices fell almost a cent to $1.459 a gallon.

"There is an uneasy balance between supply and demand, and not enough investment by OPEC and non-OPEC to increase the days in forward cover," says Mary Novak, managing director of energy service at Global Insight.

Novak says the global oil supply is currently at 51.5 days of forward cover, which is calculated by comparing global stock inventory with global demand. In 2003, the cover was 53 days.

"From 2003 to 2004 we have seen no improvement in the days of forward cover. Even though demand has increased by about 2 million barrels a day from last year, and supply is meeting the demand with an increase of about 2 million a day, the days of forward cover are declining, which is why oil prices remain high," Novak said.

Novak expects days of forward cover to decline by the fourth quarter to 50, and sees oil prices increasing to $52 a barrel.

OPEC President Sheikh Ahmad al-Fahd al-Sabah said Monday that the cartel is producing 29.7 million barrels a day, roughly 2 million barrels above its target,

Reuters

reported. Recently, an aide to Saudi Arabia Crown Prince Abdullah, Adel al-Jubeir, said energy prices could crimp the global economy, and that "$50 a barrel is way too high."

Crude prices have generally resisted repeated pledges from Saudi Arabia and OPEC to increase output, holding stubbornly between $50 and $55 a barrel.

John Felmy, an economist at the American Petroleum Institute, sees more potential for increased energy price volatility if monetary change comes to China.

"The big question is China and it's exchange rate," Felmy says. The world's No. 2 oil importer is being urged by the U.S. government to float its currency instead of having it pegged to the dollar, a step that most economists believe would lead to a higher yuan. Under this scenario, Felmy says, it would be more expensive for China to export but cheaper for it to import oil, possibly raising demand in world energy markets.

Meanwhile, more signs of economic slowdown came Monday from the U.S. manufacturing sector, where high energy prices held growth to its slowest pace in about two years.

The Energy Department releases its weekly inventory data Wednesday. Analysts are expecting another 1.1 million barrel increase in crude stocks after last week's 5.5 million-barrel build. Gasoline inventories are expected to rise by 900,000 barrels.

In company earnings news,

Transocean

(RIG) - Get Report

, the offshore drilling company, said net income for the first quarter more than quadrupled to $91.8 million, or 28 cents per share, on revenue of $630.5 million, driven mainly by higher day rates. Excluding a loss on early debt retirement and a gain associated with the sale of the semisubmersible rig, income was $79.7 million, or 24 cents a share. This beats analysts' average estimate of 17 cents a share, according to Thomson Financial. Shares dropped $1.72, or 3.57%, to $46.40.

Transocean said higher pricing power helped boost its earnings, citing day-rate increases of 100% or more. "In the U.K. North Sea and the U.S. Gulf of Mexico ... day rates have improved from approximately $50,000 per day in 2004 to a general range of $100,000 to $160,000 per day at present," the company said. Some of its harsh environment deep-sea rigs can cost up to $250,000 a day.

Unit Corp.

(UNT) - Get Report

is another drilling company to enjoy a surge in day rates. The company almost doubled its first-quarter net income to $30.7 million or 67 cents per share. "The improvement in revenue and net income was attributable to increases in the number of drilling rigs utilized and day rates, as well as increases in the production of oil and natural gas and the prices received for those commodities," the company said. Earnings, however, missed analysts' estimates by a penny, according to Thomson Financial. Shares dropped $2.20, or 5.48%, to $37.95.

Chesapeake Energy

(CHK) - Get Report

, which produces oil and natural gas, said net income rose to $119.5 million, or 36 cents a share, from $104.4 million, or 38 cents a share, a year earlier, driven by higher energy prices. Adjusted to losses from interest rate hedging and debt extinguishing, income would have been $192.6 million or 56 cents a share. Analysts polled by Thomson Financial were expecting average earnings of 50 cents per share. Shares fell 78 cents, or 3.90%, to $19.21.

Parker Drilling

TheStreet Recommends

(PKD) - Get Report

said it earned $3.9 million, or 4 cents a share, on revenue of $120.2 million in the first quarter, compared with a loss of $4.9 million, or 5 cents a share, on revenue of $90.9 million a year ago. Results included a charge of 1 cent per share for the early retirement of debt. Analysts on average were expecting earnings of 1 cent a share, according to Thomson Financial. Still, shares declined 20 cents, or 3.54%, to $5.45.

Berry Petroleum

(BRY) - Get Report

, the independent producer of oil and gas, also reported better-than-expected earnings. Net income for the first quarter more than doubled to $22.5 million or $1 per share on revenue of $88 million, from $10.4 million, or 47 cents per share, on revenue of $57.3 million in the same period a year ago.

The company's average daily production of 22,047 barrels of oil equivalent increased by 14% from a year ago, and the average realized sales price was $37.81 per barrel of oil equivalent, up 48% from $25.58. Shares fell 1.37% to $46.90.

The Philadelphia Oil Service Sector Index was down 2.5% and the American Oil Index was down 1.15%. Leading the service index decline are

Baker Hughes

(BHI)

, with a 2.6% drop, and

GlobalSantaFe

(GSF)

, which fell about 2%.

Shares of major oil producers were mostly down in early trading.

Exxon Mobil

(XOM) - Get Report

lost 1.66%;

ChevronTexaco

(CVX) - Get Report

dropped 0.24%;

Royal Dutch/Shell

( RD) fell 0.61%; and

BP

(BP) - Get Report

decreased 0.33%.

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