AP
Oil Prices Drop After Inventory Report
Wednesday January 9, 5:46 pm ET
By Jackie Farwell, AP Business Writer
Oil Prices Fall After US Data Shows Rising Gasoline Stocks Offset Drop in Crude Inventories


NEW YORK (AP) -- Oil prices settled lower Wednesday after swelling gasoline supplies offset a tumble in crude oil stockpiles to their lowest level in more than three years.

Crude inventories fell 6.8 million barrels, or 2.3 percent, to 282.8 million barrels during the week ended Jan. 4, the Energy Department's Energy Information Administration said in its weekly report. It marked the eighth consecutive decline, dragging supplies to their lowest point since October 2004.

The drop was more than 8 times the 800,000 barrels that analysts surveyed by Dow Jones Newswires had forecast. However, gasoline inventories beat expectations, rising a strong 5.3 million barrels, or 2.6 percent, to 213.1 million barrels. Analysts forecast stockpiles would climb by only 1.6 million barrels last week.

"The gasoline market won the tug of war," said Tim Evans, an analyst at Citigroup Inc. in New York.

Contributing to the drop in crude oil stocks were efforts by Gulf Coast refineries to minimize their inventories, which are subject to year-end taxes, he said. Crude supplies also tend to bottom out early in the year, Evans said.

"When we have weak gasoline demand, as we do now, and when we have swelling gasoline inventories, as we do now, it's hard to make the case that the overall petroleum market is critically tight," he said.

Light, sweet crude for February delivery lost 66 cents to settle at $95.67 a barrel on the New York Mercantile Exchange. It rose as high as $97.97 after the inventory report.

February gasoline fell 3.84 cents to end at $2.4355 a gallon. Rising energy prices and a shaky economy have dampened demand for the motor fuel.

At the pump, gas prices dipped to a national average of about $3.10 a gallon Wednesday, but remain well above the year-ago average of $2.30 a gallon, according to AAA and the Oil Price Information Service. The Energy Information Administration on Tuesday said gas prices are expected to average more than $3 a gallon through 2009 and peak near $3.50 this spring.

In London, February Brent crude fell $1.35 to settle at $94.25 a barrel on the ICE Futures exchange.

The weekly report also showed that inventories of distillate fuel, which includes diesel and heating oil, rose 1.5 million barrels to 128.7 million barrels. Analysts had expected a drop of 300,000 barrels.

Heating oil futures fell 2.29 cents to $2.6134 a gallon. Natural gas prices climbed 13.2 cents to settle at $8.099 per 1,000 cubic feet.

U.S. refineries ran at an average 91.3 percent of total capacity, an increase of 1.9 percentage points, beating the expected 0.1 percentage point gain, the report said.

Oil was supported somewhat by a surge in the price of gold, analysts said. Gold futures rose above $880 an ounce Tuesday to their highest level ever, not accounting for inflation.

A monthly EIA report Tuesday predicted oil supplies will be tight this year but ease in 2009. The EIA predicted oil prices will average $87 a barrel this year, up from a previous estimate of $85. The average price will then fall to $82 a barrel in 2009, it said.

A barrel of light, sweet crude surpassed $100 a barrel on the New York Mercantile Exchange for the first time last week.

Associated Press Writers Gillian Wong in Singapore and George Jahn in Vienna, Austria, contributed to this report.