Oil prices fall on global economic worries
NEW YORK (AP) — Worries that the global economy is weakening pushed oil prices down Wednesday, even though the government said that oil supplies fell sharply in the U.S.
West Texas Intermediate crude, the benchmark used to price oil in much of the U.S., fell $1.38 to $96.63 a barrel in New York. Brent crude, which is used to price oil produced in many foreign countries, fell $2.05 to $106.60 a barrel in London.
Oil prices and stock prices have fluctuated for weeks with concerns over the European debt crisis. On Wednesday those worries intensified after a German bond offering failed to attract buyers. Germany is Europe's largest economy, and among its strongest, so its struggle to raise money raised fears that weaker economies could face a disastrous cash crunch that could cripple the global financial system.
Oil prices have remained generally high, however, because investors are anxious that continuing strife in the Middle East could disrupt supplies. Also, demand for oil in China and other developing nations has remained strong. Global oil demand is expected to reach record levels this year of more than 89 million barrels per day.
But even China's economy appeared to be weakening after a survey found manufacturing activity slowing there.
When economies slow, demand for crude oil and refined products like diesel, jet fuel and gasoline falls because fewer goods are produced and shipped, and people travel less. Oil has fallen 7 percent since last Wednesday, when it spiked to $102.59 per barrel.
Phil Flynn, an analyst at PFG Best in Chicago said oil prices likely would have fallen much further this Wednesday, but U.S. government data showed that stocks of crude fell nearly 2 percent. That suggests more oil will be needed to replenish supplies.
Crude supplies fell by 6.2 million barrels, or 1.8 percent, to 330.8 million barrels, which is about 8 percent below year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.
Supplies of gasoline, however, rose sharply. Gasoline supplies increased by 4.5 million barrels, or 2.2 percent, to 209.6 million barrels. That's triple the amount analysts expected.
Demand for gasoline in the U.S. has fallen steadily this year as pump prices rose to near record levels in the spring and remained high throughout the year. Demand for gasoline over the four weeks ended Nov. 18 averaged 8.6 million barrels a day, 4 percent lower than a year earlier when gasoline was 14 percent cheaper.
The reason, analysts say, is that demand for diesel has been extraordinarily strong around the globe, especially in Asia and Latin America. U.S. refiners have been working at near-full capacity to produce diesel, but the process also creates gasoline, adding to supplies even though the market is soft.
That's good news for U.S. drivers. Retail gasoline prices are lower than expected, given the relatively high price of crude.
On Wednesday pump prices extended a two-week slide that has seen average prices down 11 cents a gallon since Nov. 10. The average price of retail gasoline fell a penny to $3.33 per gallon, according to AAA, OPIS and Wright Express.
Gasoline futures rose 5 cents to $2.5109 a gallon in New York.
In other energy trading in New York, natural gas rose 4 cents to $3.45 per 1,000 cubic feet, and heating oil fell 6 cents to $2.9883 a gallon.
Jonathan Fahey can be reached at http://twitter.com/JonathanFahey .