Price of Crude Sinks as Supply Climbs

Crude oil prices fell nearly $3 a barrel Wednesday as new inventory and demand data eased concerns about summertime fuel supplies and traders pocketed profits from the oil market’s dramatic run-up in recent weeks.

The September futures contract for light sweet crude, the U.S. benchmark, sank $2.83, or 4.3%, to $63.25 a barrel on the New York Mercantile Exchange. The retreat was the largest one-day drop since April and marked the third day in a row of lower prices after crude hit a record high of $66.86 on Friday.

Futures for regular gasoline, an indicator of retail pricing to come, also dropped sharply Wednesday. The cost of a gallon of regular gasoline jumped to an all-time high of $2.03 in early trading, but fell back to close at $1.89, down 9 cents.

“It’s amazing,” said Phil Flynn, senior market analyst for Alaron Trading Corp. in Chicago. But, he added, “the market has had such an incredible run in a short period of time, it was just a matter of time before there was some kind of correction.”

Traders looking for reasons to cash out found some fodder in reports Wednesday that showed strong oil inventories and slipping demand for gasoline.

Oil inventories rose 300,000 barrels to 321.1 million barrels over the last week, putting supplies 11% above year-ago levels, according to weekly figures from the federal government.

Stockpiles of gasoline fell more than expected. A rash of recent refinery outages forced companies to tap reserve supplies over the last week, cutting U.S. inventories by 5 million barrels as of Aug. 12, to levels at the lower end of the normal range for this time of year, according to the Energy Information Administration, the statistical branch of the Energy Department. Gasoline production averaged 8.7 million barrels a day, down slightly.

The gasoline inventory decline triggered the early-morning rally in gasoline futures, but the trend reversed when a report from the American Petroleum Institute showed fuel consumption beginning to slip.

Nationwide demand for gasoline in July fell 0.8% “under the influence of higher retail prices,” the oil industry trade group said in its monthly report. The volume of gasoline supplied to the market, which some analysts employ as a measure of usage, was 9.28 million barrels a day in July, down from 9.36 million barrels a year earlier, according to the report.

“There are signs that gasoline demand is tapering off, which has reduced supply fears,” said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York.

Fadel Gheit, an oil analyst with Oppenheimer & Co., said the institute’s demand figure added weight to a Tuesday report from Wal-Mart Stores Inc. that record-high gasoline prices were hurting consumer budgets and stunting retail sales.

“A lot of people looked at Wal-Mart and thought, ‘Aha, this is a warning signal,’ ” Gheit said. “That’s a negative for the economy, and obviously that will bring [oil] consumption down.”

But Gheit isn’t so sure that such a perception is correct.

“One day does not make a trend,” he said. “We’re taking a breather now because you can’t drive 100 miles per hour all the time.”

Meanwhile, consumers from coast to coast are paying more for gasoline and diesel than ever.

Nationwide, the average cost of self-serve regular rose to $2.564 a gallon Wednesday, another record, according to a daily survey from AAA. In California, the average increased to $2.773, also a record.

Diesel fuel has continued to be more expensive than gasoline, although it’s cheaper and easier for refineries to make. The retail price of diesel nationwide was $2.618 a gallon, while California’s average hit $3.136, AAA said.

Flynn, the market analyst at Alaron, said oil prices could decline further and ultimately provide some relief at the pumps.

But, he added, “if you’re looking for crude to go back to $50, I think you’re going to have a long wait.”

Bloomberg News was used in compiling this report.