Crude Settles 3.5% Lower After Inventories Rise

Crude-oil futures settled 3.5% lower Wednesday on a sharp rise in U.S. oil inventories and signs of continued sluggish demand.

Light, sweet crude-oil futures for October delivery on the New York Mercantile Exchange, ahead of the contract's expiration Thursday, slid $3.31 a barrel to settle at $91.98. The drop was the biggest in a single day since July 23 and put prices at their lowest level since Aug. 3.

North Sea Brent crude for November delivery on the Intercontinental Exchange settled 3.4%, or $3.84, lower at $108.19 a barrel. That is the lowest price since Aug. 2.

Nymex crude futures have fallen 7.1%, or $7.02 a barrel, in the past three days on nagging doubts about the pace of the global economic recovery and prospects for oil-demand growth. The current selloff started after prices moved above $100 a barrel intraday Friday for the first time since early May but failed to hold gains.

"It's not the time to get in front of the freight train," said Tony Rosado, a broker at Dorado Energy Services.

Crude prices have fallen in recent days as Saudi Arabia, the world's biggest oil exporter, said it wants to see lower prices and pledged to keep output high to meet customer demand.

Wednesday, oil prices slid further on signs U.S. output, refineries and import facilities have fully recovered from disruptions caused by Hurricane Isaac in late August, but demand for petroleum products remains weak.

The Energy Information Administration said Wednesday the amount of crude oil in storage in the U.S. rose last week by 8.5 million barrels, while analysts had expected an increase of just 500,000 barrels. Part of the gain was from imports, which jumped by 1.28 million barrels a day in the week ended Sept. 14 to more than 9.8 million barrels a day.

At the same time, U.S. oil demand has slipped. In the past four weeks, a timespan that minimizes the week-to-week impacts of the hurricane, demand averaged 18.334 million barrels a day, its lowest level since the four weeks ended June 1.

Lower oil demand reflects the weaker economy and high retail-fuel prices, which are offshoot of lofty crude-oil prices. Demand for gasoline--the most widely used petroleum product in the world's biggest oil consumer--also has been reduced by improved vehicle-mileage standards, according to the EIA.

The news was enough to send Nymex crude below $92 a barrel for the first time since early August. Mr. Rosado noted prices broke below several support levels on trading charts while thrashing around in a near-$5 high-low range Wednesday.

Mr. Rosado said he anticipates a further drop to $90 or below in the near term.

Gasoline prices followed crude lower, with reformulated gasoline blendstock futures for October delivery settling 7.04 cents, or 2.4%, lower at $2.8286 a gallon, the lowest price since July 26. The futures were also hurt by less demand for the fuel now that the summer driving season is over.

"When we move beyond Labor Day, the drop in demand becomes evident," said Gene McGillian, a broker and analyst at Tradition Energy. "As crude has turned, the air has really been let out of the market" for gasoline futures. Gasoline futures have fallen by 18.7 cents, or 6.2%, in the past three days.

October heating-oil futures settled 8.31 cents, or 2.7% lower, at $3.044 a gallon, the lowest price since Aug. 14. Heating-oil futures have dropped 19.55 cents, or 6%, in the past three days.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
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