Oil down on stronger US crude, gasoline supplies
By STEVENSON JACOBS, AP Business Writer
36 minutes ago

NEW YORK - Oil prices fell below $98 a barrel Wednesday as a surprise build in U.S. gasoline supplies and a bigger-than-expected jump in crude stocks offered more evidence that a rough economy is forcing Americans to drive less.

Light, sweet crude for November delivery fell $2.88 to $97.76 a barrel in midday trading on the New York Mercantile Exchange, after earlier falling as low as $95.95.

Crude prices have traded erratically in recent days as investors wait to see if lawmakers will approve a $700 billion U.S. financial bailout plan. On Tuesday, prices rose $4.27 to settle at $100.64 a barrel, recovering from a $10.52 drop the previous day — the second largest one-day dollar decline ever.

Wednesday's losses were tied to data showing more robust U.S. fuel supplies. The Energy Department's Energy Information Administration said in its weekly report that crude stocks rose by 4.3 million barrels, or 1.5 percent, to 294.5 million barrels for the week ending Sept. 26. Analysts had expected stocks to rise or fall of 1.5 million barrels, according to a survey by energy research firm Platts.

At the same time, gasoline inventories rose by 900,000 barrels, or 0.5 percent, to 179.6 million barrels. Analysts expected stockpiles of the motor fuel to fall in the range of 1 million to 3 million barrels.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill., said the supply increases show that Gulf Coast energy infrastructure is steadily ramping up operations after shutdowns caused by Hurricanes Ike and Gustav — but also that U.S. consumers and businesses aren't in a position to resume their old fuel-guzzling habits.

"It reinforces the weak demand argument that's been weighing on the markets," Ritterbusch said. "At the same time, we're seeing very strong recovery in production of both crude oil and products in the aftermath of the hurricanes."

Senate leaders scheduled a vote for Wednesday on a version of the emergency rescue bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House of Representatives. The House rejected a similar plan Monday by a vote of 228-205.

But traders were skeptical a bailout of bad mortgage debt would quickly reverse slowing global economic growth and weakening demand for crude.

"It would be good news to avoid further turmoil, but it's too early to assume a new package would lead to a recovery in the U.S.," said Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo.

A slump in energy demand has accelerated in Asia. In India, domestic oil product sales totaled 2.41 million barrels per day in August, the lowest level this year, according to Barclays Capital research. In the same month, Japan's oil demand fell by 8.4 percent.

U.S. energy demand also continues to wane, according to the weekly EIA report. Demand for gasoline over the four weeks ended Sept. 26 was 4.5 percent lower than a year earlier, averaging more nearly 8.9 million barrels a day.

At the same time, U.S. refineries ran at 72.3 percent of total capacity on average, a gain of 5.6 percentage point from the prior week, according to the EIA. Analysts expected capacity to rise in a range of 5 percent to 8 percent to 71.7 percent to 74.7 percent.

Inventories of distillate fuel, which include diesel and heating oil, fell by 2.3 million barrels to 123.1 million barrels for the week ended Sept. 26. Analysts expected distillate stocks to slip by 1 million to 2 million barrels.

At the pump, a gallon of regular fell 1.4 cents overnight to a new national average of $3.619, according to auto club AAA, the Oil Prices Information Service and Wright Express. Prices reached a record $4.114 a gallon on July 17.

The continuing strengthening of the dollar also helped push down oil prices.

Investors tend to buy into commodities like oil when the dollar weakens and as a hedge against inflation and usually sell those investments when the greenback gains.

On Wednesday, the euro fell to $1.4044 from $1.4083 late Tuesday in New York.

In other Nymex trading, heating oil futures fell 5.15 cents $2.8432 a gallon, while gasoline prices lost 3.77 cents to $2.42 a gallon. Natural gas for November delivery rose 25.1 cents to $7.689 per 1,000 cubic feet.

In London, November Brent crude fell $3.67 to $94.50 a barrel on the ICE Futures exchange.