Ample supply drives oil below $77 per barrel

AP News
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Posted: Dec 02, 2009 3:17 PM

Oil prices dipped Wednesday with more evidence that the country is using less energy while oil and gasoline supplies continue to grow.

Demand for gasoline slumped during the Thanksgiving week, when millions of people take to the road and gas sales usually jump.

"Once the holiday was over, people got right back to their cocooning habits, stayed home and didn't do a lot of driving," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Benchmark crude for January delivery dropped $1.77, or more than 2 percent, to settle at $76.60 a barrel on the New York Mercantile Exchange. In London, Brent crude for January delivery fell $1.47 to settle at $77.88 on the ICE Futures exchange.

The Energy Information Administration reported Wednesday that oil supplies grew last week, a surprise to most analysts, and that the amount of gasoline in storage surged by 4 million barrels.

The reason is that refineries, which turn crude in to fuel, are cutting back on production with fewer consumers and businesses buying it.

The EIA reported refineries had slowed operations dramatically, running at less than 80 percent capacity for only the second week this year.

Meanwhile, a private report showed the economy shed more jobs last month than expected. The ADP National Employment Report said 169,000 private sector jobs were lost in November. That's less than October but worse than what was expected by economists polled by Thomson Reuters.

The poor economy has sent prices for natural gas plummeting because so many energy intense industries have shut down facilities and cut jobs.

Natural gas hit a 52-week low Wednesday and closed down 23.2 cents at $4.53 per 1,000 cubic feet.

At the pump, retail gas prices rose slightly overnight to a new national average of $2.629 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 6.2 cents cheaper than last month, but 81.7 cents more expensive than the same time last year, when pump prices were in free fall.

That gap is expect to grow wider. Gasoline prices dipped to about $1.61 per gallon last December. No one expects a similar decline this year.

In other Nymex trading in contracts for January delivery, heating oil fell 4.16 cents to settle at $2.0364 a gallon, and gasoline lost 4.95 cents to settle at $1.9928 a gallon.

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Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.