Oil Falls Below $103 on Weak Demand

AP | NEW YORK -- Oil prices pulled back sharply Wednesday after the government released data suggesting that the high price of oil and gasoline are depressing demand for petroleum products.

The demand numbers in the Energy Information Administration's weekly inventory report overshadowed data showing that supplies of oil grew less than expected last week, while gasoline and heating oil supplies fell.

Gas prices at the pump, meanwhile, slipped lower for the third day while diesel fuel rose to another record.

Overall consumption of oil and its products fell by 3.2 percent over the last four weeks compared to the same period last year, the EIA said. Demand for gasoline fell by 1 percent over the same period.

"It doesn't look like we've got much in the way of demand here for gasoline," said Tim Evans, an analyst at Citigroup Inc., in New York

Light, sweet crude for April delivery fell $5.56 to $103.86 a barrel on the New York Mercantile Exchange. The April contract expires Wednesday, and trading was much heavier in May oil futures, which fell $5.50 to $103 a barrel on the Nymex.

The market's reaction to the tepid demand data marked a change from its recent focus on the falling dollar, with investors looking more closely at oil supply and demand fundamentals. Prices have jumped sharply in recent weeks as investors looked to the dollar for direction and ignored evidence of rising supplies, falling demand and a weakening economy.

Oil and other commodities are viewed as a hedge against inflation, and tend to rise in price when the dollar falls. Also, a falling dollar makes oil less expensive for overseas investors.

But some analysts wondered whether the market's tether to the dollar may be ending.

"Could it be that (investors have) finally noticed that the big picture here is not bullish?" Evans said.

Investors shrugged off EIA data showing that crude oil supplies grew by 200,000 barrels last week, much less than the 2.1 million barrel increase analysts surveyed by Dow Jones Newswires, on average, had expected.

Gasoline inventories fell by 3.5 million barrels, when analysts had expected a small increase, and supplies of distillates, which include heating oil and diesel fuel, fell by 2.9 million barrels, more than double the expected decline.

Further depressing demand for oil was refinery activity, which fell by 1.2 percentage points last week to 83.8 percent of capacity, a sign refiners are cutting back on production of low-margin gasoline. Gasoline crack spreads — the difference between what refiners pay for oil and make for selling gasoline — have dipped into negative territory several times in the last week, analysts said.

At the pump, meanwhile, prices dipped by 0.1 cent to a national average of $3.279 a gallon, according to AAA and the Oil Price Information Service. Gas prices followed oil prices to new records in recent weeks, but have paused as oil's march higher has stalled.

Still, gas prices are 72 cents higher than a year ago, and the government and analysts expect prices to spike as high as $3.50 to $4 a gallon this spring as suppliers stock up in advance of peak summer driving season.

High prices are adding to the woes of consumers already facing high food prices and falling home values. But oil prices are also pushing diesel and jet fuel to records. Diesel rose a cent Wednesday to a record of $4.025 a gallon, the AAA and Oil Price Information Service said. Jet fuel fetched a record spot price of $3.21 a gallon at New York Harbor on Tuesday, according to the Energy Department.

Truckers say the fuel surcharges they pass on to customers aren't covering diesel's rising cost, and they are struggling to make ends meet. Airlines are cutting capacity and jobs, and considering mergers, to cope with rising fuel costs.

If oil's long-predicted retreat has begun, prices of gasoline, diesel and jet fuel could also begin to fall.

Other energy futures also fell Wednesday. April gasoline futures fell 10.11 cents to $2.5589 a gallon on the Nymex, and April heating oil futures fell 12.03 cents to $3.0176 a gallon.

April natural gas futures fell 30.8 cents to $9.106 per 1,000 cubic feet.

In London, May Brent crude futures fell $4.61 to $100.95 a barrel on the ICE Futures exchange.

Oil falls from $102 on inventories, economy

Crude retreats from record high as supplies rise for 7th straight week and weak economic reports roll in.

By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- After setting a new intraday high above $102 a barrel, oil prices turned lower Wednesday following a big rise in inventories and concerns over the nation's economic health.

U.S. light crude for April delivery fell 52 cents to $100.36 a barrel on the New York Mercantile Exchange. Oil had traded down 14 cents just prior to the report's release.

Crude set a new intraday high of $102.08 a barrel earlier in electronic trading. Analysts blamed the spike on investors pouring money into commodities as an inflation hedge against the weak dollar and seeking shelter from volatile stock markets.

But oil slipped after the Energy Information Administration's weekly inventory report. EIA said crude stocks rose by 3.2 million barrels last week, higher than the 2.4 million barrel increase expected by analysts, according to a Dow Jones poll.

Gasoline supplies, attracting more attention as traders anticipate the upcoming summer driving season, rose by 2.3 million barrels. Analysts were expecting a gain of 400,000 barrels. EIA said gas stocks are now above average for this time of year.

Distillates, used to make heating oil and diesel fuel, fell by 2.5 million barrels, slightly more than the 1.8 million barrel drop expected.

Oil hit a new trading high earlier in the session as a series of gloomy economic reports and comments from Fed Chairman Ben Bernanke sent the dollar to record lows against the euro. The euro traded at over $1.51 to the dollar early Wednesday.

In addition to investors flocking to commodities when the dollar falls, the falling greenback also sends oil prices higher as crude is priced in dollar worldwide. A lower dollar thus gives foreign consumers less incentive to conserve oil as crude is, relatively, cheaper for them. It also provides less incentive for oil-exporting countries to increase production, as they need a higher price per barrel to offset the lower dollar.

But one analyst said the falling dollar's effect on crude prices was already priced in by midday Wednesday, and traders began to fear the gloomy economic news behind the dollar's fall will hurt demand for crude.

"The energy market has two masters," said John Kilduff, an energy analyst at MF Global in New York, referring to both its attraction as an inflation hedge and the necessary strong economy to keep demand and prices high.

Kilduff said traders were eying not just the inventory build, but also a lackluster morning report on durable goods orders and a downbeat view on the economy from Bernanke.

"It's helping to feed into the feeling that the economic slowdown will be severe enough that energy demand will slacken," said Kilduff.

Bernanke, in testimony before U.S. lawmakers, said the economy still faces slower growth prospects.

Economic reports Tuesday helped sink the dollar and push oil to its fresh highs.

A survey on residential real estate revealed that the decline in home prices picked up at the end of 2007. And consumer confidence fell to its lowest level in five years, the New York-based Conference Board reported, on fears about the job market and slowing business activity.

But Bernanke also sounded the inflation alarm, and that could have helped send oil prices lower.

He said increasing inflation concerns could "complicate" the Federal Reserve's efforts to stimulate the economy, raising the possibility of a halt in interest rate cuts.

A halt in interest rate cuts could send the dollar higher, and oil prices lower.

Oil prices have nearly doubled over the last year, and has risen five-fold since 2002.

Most analysts say rising demand, especially from developing nations, coupled with few new discoveries of easily accessible oil fields is the main culprit behind the runup.

The tight supply and demand situation has also attracted a slew of investment money, and the falling dollar has played a role as well.

The fact that the world uses nearly as much oil as it produces has magnified the effect of geopolitical tensions, as there is less spare capacity to cover a supply disruption.

BREAKINGNEWS

Oil prices off their lows on government report that heating oil supplies are weaker than expected. More soon.

Oil once again breaks $100 - again base don specualtion and not supplies

Crude soars as investors weigh the possibility of OPEC production cuts; Texas refinery explosion may have also lifted prices.

February 19 2008: 2:47 PM EST

The path to $100-a-barrel oil now appears open, according to one industry analyst.

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The Venezuelan president threatens to cut oil shipments to the United States. Play video

NEW YORK (AP) -- Oil futures prices have shot back above $100 a barrel for the first time since Jan. 3.

A weekend refinery explosion in Texas and the possibility that OPEC will cut production next month are driving prices higher, although analysts say there isn't a single factor to explain the move.

Light, sweet crude for March delivery has risen as high as $100.10 a barrel on the New York Mercantile Exchange.

The refinery in Big Spring, Texas is owned by Alon USA. It processes nearly 70,000 barrels of oil a day. Officials say it could be closed for as long as two months.

"The refinery fire in Texas is making people a little concerned," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.

Light, sweet crude for March delivery rose $4.05 to $99.5 a barrel on the New York Mercantile Exchange. March gasoline jumped 11.4 cents to $2.6078 a gallon, and March heating oil rose 10.41 cents to $2.751 a gallon.

The dollar fell Tuesday, giving investors another reason to buy oil. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

For the moment, investors appear to have put aside concerns about the economy that have sent oil prices down into the mid-$80 range twice since crude peaked above $100 last month. Traders are instead focused on the Organization of Petroleum Exporting Countries, which will meet early next month to map out production plans, and Venezuela, where President Hugo Chavez made conflicting statements this weekend about the country's legal dispute with Exxon Mobil Corp. (XOM, Fortune 500)

OPEC could move to cut production in the second quarter, typically a period of low demand, though many analysts feel that's unlikely. In Venezuela, Chavez said he was not serious about an earlier threat to cut oil sales to the United States, but also threatened to sue Exxon Mobil. The world's largest oil company is fighting Venezuela's nationalization of an oil project, and recently convinced several courts to freeze $12 billion in Venezuelan oil assets.

None of the news is enough to justify a nearly $3 a barrel jump in the price of crude, said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm. Echoing other analysts, Cordier argued that the oil market is in the process of "decoupling" from oil's supply and demand fundamentals. He said investors drawn by the falling dollar and momentum are pushing oil prices sharply higher despite reports last week from the Energy Department, OPEC and the International Energy Agency which all cut oil demand growth predictions for this year.

"Everyone concurs that we've got smaller demand coming in the U.S.," Cordier said.

Retail gas prices, meanwhile, jumped 1.8 cents to a national average price of $3.032 a gallon Tuesday, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, are following oil prices higher. The Energy Department expects gas prices to peak near $3.40 a gallon this spring.

Other energy futures also rose Tuesday. March natural gas jumped 30.1 cents to $8.961 per 1,000 cubic feet. Analysts said prices were supported by forecasts for cooler weather, but that futures were also following oil prices higher.

In London, Brent crude for April delivery rose $3.25 to $98.16 a barrel on the ICE Futures exchange.

Chavez: No plan to halt oil exports to U.S.

Oil jumps over $2 as crude supplies drop

Unexpected decline comes despite fall in refining activity; gasoline, distillate supplies rise.

October 31 2007: 10:38 AM EDT

NEW YORK (CNNMoney.com) -- Oil prices jumped over $2 a barrel Wednesday after the government said supplies of crude oil fell unexpectedly despite a drop in refining activity.

U.S. light crude for December delivery rose $2.67 to $93.05 a barrel on the New York Mercantile Exchange. Oil had traded 85 cents higher just prior to the report's release.

In its weekly inventory report, the Energy Information Administration said crude stocks fell by 3.9 million barrels last week. Analysts were looking for a gain of 100,000 barrels, according to a Dow Jones poll.

But the drop in crude stocks came at the same time that refiners scaled back operations, running at just over 86 percent capacity.

Distillates, used to make heating oil and diesel fuel, rose by 800,000 barrels while gasoline supplies increased by 1.3 million barrels. Analysts were looking for a 1 million barrel drop in distillate supplies and a 400,000 barrel gain in gasoline stockpiles.