Oil Futures Sharply Lower

Petroleum futures prices were sharply lower Wednesday on the New York Mercantile Exchange amid signs of weakness in crude oil prices.

The deflationary implications of lower oil prices also contributed to a sharp rally in Treasury bond futures, analysts said.

The announcement that Britain lowered the price of its North Sea crude oil set the tone for the day, and concern that Saudi Arabia might follow up on its threat to increase production added to the selling fervor, said Andy Lebow, a petroleum analyst in New York with Shearson Lehman Bros.

Further, the American Petroleum Institute reported Tuesday that domestic inventories of distillates, which include heating oil and diesel fuel, increased more than 4 million barrels to 104.6 million barrels in the week ended May 31.

The report prompted heavy selling in the heating oil and gasoline pits and induced additional selling by traders who follow technical factors such as trends on price charts, Lebow said.

Prices of gasoline and heating oil fell by the 2-cent limit in several delivery months.