Oil Prices Fall on Petroleum Supply Report

WASHINGTON – A benign petroleum-supply snapshot helped send oil prices down by more than $1 a barrel on Wednesday, although analysts said crude futures – still above $60 a barrel – weren’t likely to fall too far given the market’s jitters about rising global demand and U.S. refinery snags.

The Department of Energy released data showing that domestic inventories of gasoline fell sharply last week, but that supplies of crude oil and diesel grew.

"When we’re up at these levels, you constantly need fresh bullish news in order to sustain the rally, in order to feed the momentum," said oil analyst John Kilduff of Fimat USA in New York. "That’s why a little turnaround here wouldn’t be much of a surprise. But none of these pullbacks have been of the magnitude needed to break the back of the larger uptrend."

Light sweet crude for September delivery fell $1.09 to settle at $60.86 a barrel on the New York Mercantile Exchange. Prices had climbed as high as $62.50 a barrel before the government data were released, surpassing the previous intraday high of $62.30, set Tuesday.

Oil analyst Phil Flynn at Alaron Trading Corp. said traders were also taking the opportunity on Wednesday to lock in some profits from the recent uptrend.

The contract settled at $61.89 a barrel on Tuesday, the highest closing price since trading began on the Nymex in 1983. On an inflation-adjusted basis, that is still below the all-time high set in 1981. Oil is now around 40 percent more expensive than a year ago.

In London, Brent crude for September delivery on the International Petroleum Exchange fell 5 cents to $60.57 a barrel.

Energy Department data released Wednesday showed an increase of 200,000 barrels in the nation’s inventory of crude oil last week, putting the supply at 318 million barrels, or 8 percent above year ago levels.

Gasoline inventories declined by 4 million barrels to 205.2 million barrels, or 3 percent below last year’s level. The supply of distillate fuel, which includes heating oil and diesel, rose by 1.5 million barrels to 127.3 million barrels or 5 percent above last year.

In other Nymex trading, gasoline futures fell more than a cent to $1.7709 a gallon while heating oil fell 3.62 cents to $1.6889 a gallon.

Over the past few years, rising oil consumption has strained the world’s limited excess production capacity, putting energy traders on edge about any threat to supply.

For example, the death of Saudi Arabia’s king helped rattle markets on Monday, even though the transition to a successor was smooth and the country’s oil policy is not expected to change.

Justified or not, "nervousness about the kingdom’s oil supply has been reinvigorated," Kilduff said.

Another area of concern is that refineries in the United States are running hard – as they do every summer, when gasoline demand picks up – but this increases the likelihood of operational problems. While the Energy Department said refineries ran at 96 percent of capacity last week, there has been a spate of unplanned refinery outages in the past week.

The potential for more supply disruptions was highlighted Tuesday when the National Weather Service said there could be 11 to 14 more tropical storms, including seven to nine more hurricanes, by the end of November. Last year’s Hurricane Ivan reduced output in the Gulf of Mexico for months.