Oil futures sank on Wednesday, as traders looked past a steep draw in U.S. crude inventories and focused on a wave of dismal economic headlines that raise concerns about oil demand.
Light, sweet crude for January delivery settled down $1.84, or 1.9%, to $96.17 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange recently traded down $1.49, or 1.4%, to $107.54 a barrel.
Futures spent the session firmly in negative territory after the U.S. Labor Department said new claims for jobless benefits rose by 2,000 last week to a seasonally adjusted 393,000. Meanwhile, a key gauge of Chinese manufacturing activity posted its biggest monthly decline for November since 2009.
Those headlines spurred concerns about weakening economic growth, which is closely linked with oil demand. The U.S. and China are the world's No. 1 and No. 2 oil consumers, respectively.
Markets were also spooked by a disappointing German bond auction, which drew some of the weakest demand since the introduction of the euro. Market watchers said the result shows that the euro zone's woes are spreading to the continent's strongest economies, likely leading to weaker crude-oil demand down the road.
"The strongest economy of Europe isn't able to get any appetite for their debt--it's really showing there's a real concern out there," said Matt Smith, energy analyst with Summit Energy in Louisville, Ky.
The sluggish pace of global economic growth has been a major theme in the oil market for much of 2011. It has come into greater focus this week, after the U.S. government revised the country's third-quarter growth downward to 2% from 2.5% on Tuesday.
In the U.S., sluggish growth has meant shrinking demand for gasoline, as Americans spend their vacations closer to home and motorists spend less time on the road. U.S. weekly gasoline demand last week fell 1% from a week earlier, according to a report from SpendingPulse released earlier this week.
A report Wednesday showing a sizeable drop in U.S. crude inventories last week pulled prices out of their midday lows. Commercial oil stockpiles last week fell 6.2 million barrels last week, according to the Department of Energy. The decline came as refiners raised their utilization rate by 0.7 percentage point to 85.5% of capacity.
"They're definitely using more crude here than what they've been using the past couple weeks," said Tony Rosado, broker at GA Global Markets in New York.
Stockpiles of gasoline rose 4.5 million barrels, according to the DOE. Inventories of distillates, which includes heating oil and diesel, fell 800,000 barrels.
Analysts expected crude stockpiles last week to rise by 300,000 barrels, on average, according to a survey by Dow Jones Newswires. Gasoline stocks were seen rising 900,000 barrels. Stocks of distillates were seen falling 1.6 million barrels. Refinery runs were expected to rise by just 0.4 percentage point.
Front-month December reformulated gasoline blendstock, or RBOB, settled down 4.41 cents, or 1.7%, to $2.5177 a gallon. December heating oil fell 7.55 cents, or 2.5%, to $2.9591 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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