NEW YORK – Oil prices tumbled below $67 a barrel to 16-month lows Wednesday after the government reported big increases in U.S. fuel supplies — more evidence that the economic downturn is drying up energy demand.
The Energy Information Administration said crude inventories jumped by 3.2 million barrels last week, above the 2.9 million barrel increase expected by analysts surveyed by energy research firm Platts. Gasoline inventories rose by 2.7 million barrels last week, and inventories of distillates, which include heating oil and diesel, rose by 2.2 million barrels.
Over the last four weeks, the EIA said, motor gasoline demand was down 4.3 percent from the same period last year. Distillate fuel demand was down 5.8 percent, and jet fuel demand was down 9.2 percent.
"The main theme here that's driving this market into new low ground is demand deterioration," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "As we begin to see evidence that demand is leveling — it doesn't have to increase, just level — then we can start discussing a possible price bottom. But it appears premature at this point."
In midafternoon trading, light, sweet crude for December delivery fell $5.52 to $66.66 on the New York Mercantile Exchange. The last time a front-month contract traded below $67 a barrel was June 2007.
The energy markets have also been weighed down by the weak stock market, as investors grow more pessimistic about how long it will take the economy to recover from the current global financial turmoil.
On Tuesday, DuPont, Sun Microsystems and Texas Instruments reported disappointing earnings and bleak forecasts, sending the Dow Jones industrials average down 2.5 percent. The Dow was down another 4 percent by Wednesday afternoon following more gloomy reports from the soon-to-be acquired bank Wachovia Corp., drugmaker Merck & Co., and insurer Travelers Cos.
"Oil is now highly correlated with the stock market," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "People are looking to the Dow for sentiment on the economy."
The price of crude oil has tumbled 54 percent from its peak of $147.27 reached in mid-July.
The drop has pulled down the retail price of unleaded gasoline to $2.858 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That's down about 3 cents from Tuesday, and more than $1.25, or 31 percent, from its mid-July record.
In addition to stocks, the dollar's strength this week relative to other currencies has contributed to oil's decline. Investors often buy commodities like crude oil to hedge against a weakening dollar, and sell those investments when the dollar rebounds.
The euro fell below $1.28 for the first time in nearly two years Wednesday. The 15-nation euro dipped as low as $1.2736 in morning trading before recovering to $1.29, still down from $1.3003 late Tuesday in New York.
Meanwhile, the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global oil supply, signaled that the group plans to announce an output quota reduction at an emergency meeting Friday in Vienna.
"There should be a short-term boost to prices when they announce a cut on Friday," Chu said. "But OPEC production has always been above their quotas, so there's a credibility problem."
Russia's top energy official said Wednesday that Russia, the largest oil producer outside of OPEC, may set aside an oil reserve to influence global prices — but won't cut output, according to news reports. Deputy Prime Minister Igor Sechin said the government was considering creating an oil production reserve "which would allow it to work more efficiently with prices on the market."
In other Nymex trading, heating oil futures fell 10 cents to $2.17 a gallon, while gasoline prices dropped 10.32 cents to $1.58 a gallon. Natural gas for November delivery jumped 7.6 cents to $6.92 per 1,000 cubic feet.
In London, December Brent crude fell $3.72 to $66 a barrel on the ICE Futures exchange.
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