Oil slips as US supplies grow with weak demand

AP News
Posted: Dec 07, 2011 4:04 PM
Oil slips as US supplies grow with weak demand

A report showing that the U.S. has more oil and gasoline in supply because demand is weakening pushed oil prices lower on Wednesday.

Oil fell below $100 a barrel at one point.

Benchmark West Texas Intermediate dropped 79 cents to end the day at $100.49 per barrel in New York. Brent crude, which is used to price foreign oil that's imported by U.S. refineries, gave up $1.23 to finish at $109.28 in London.

Oil fell after the Energy Information Administration reported that oil supplies increased unexpectedly last week by 1.3 million barrels. Gasoline supplies jumped more than expected, adding 5.1 million barrels for the week ended Dec. 2. Supplies are growing because of weak demand for oil-based fuels in the U.S. Government figures show that gasoline demand in the U.S. this year could reach its lowest level since 2003.

"You really have to start wondering if something is happening with the economy," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. Recent reports show the U.S. economy is growing, but only modestly at best.

The retail price of gasoline hit $3.286 a gallon overnight. That's nearly 70 cents cheaper than the peak near $4 a gallon seen in early May. The price has dropped 12 cents in a month.

"But that is not bringing people back" to the gas pump, Kloza said.

A gallon of regular unleaded is still 32.8 cents higher than at the same time last year. Unemployment remains high, causing some Americans to consolidate trips to the stores and find other ways to cut back on driving.

Oil has been hovering around $100 per barrel for more than a week. Investors are watching Europe's struggles to contain a banking crisis that threatens to pull the region into recession. Widespread spending cuts are expected to reduce energy demand within Europe and among major manufacturing countries like China that export goods to the eurozone.

European leaders are working on ways to boost fiscal discipline and reduce debts. But credit ratings agencies have questioned if they're doing enough.

Besides waiting for a resolution in Europe, traders also continue to monitor calls for international sanctions against Iran, the world's third-largest oil exporter, stemming from accusations that it is developing nuclear weapons.

Any disruption in Iran's oil trade could further squeeze oil supplies even if other OPEC members boost exports. And experts are predicting that world supplies will struggle to keep up with growing consumer demand by the second half of 2012, even with Iran's oil included. That will force major oil importing nations to dip into spare stockpiles.

"The Iranian situation isn't going away," PFGBest analyst and trader Phil Flynn said. "After Europe gets settled, I'd expect oil prices to head higher."

In other energy trading, heating oil gave up 3.93 cents to finish at $2.9824 per gallon and gasoline futures lost 5.85 cents to end at $2.5869 per gallon. Natural gas dropped by 6.6 cents end the day at $3.421 per 1,000 cubic feet.