Oil prices tumble as U.S. crude inventories bulge

Ohio, USA - Oil prices tumbled Wednesday as new government reports show crude inventories continuing to build, suggesting that demand for oil and gasoline will not rebound any time soon.

Light, sweet crude for February delivery fell more than 5 per cent, or $2.06 per barrel, to $35.72 (U.S.) a barrel on the New York Mercantile Exchange after trading as high as $39.45.

Prices have fallen from as high as $50.47 just last week with evidence growing that a weakened global economy has eaten away at energy demand.

The Energy Department’s Energy Information Administration said crude inventories grew by 1.2 million barrels for the week ended Friday. That was below the expectation of 3 million barrels, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

Yet the department said in last week’s report that oil stocks jumped 6.7 million barrels the previous week, meaning less and less crude is being used.

Gasoline inventories rose by 2.1 million barrels, 300,000 barrels ahead of analyst estimates, and distillates increased by 6.4 million barrels compared with the estimate of a gain of 1.7 million distillates.

Crude appears to be headed back to the levels it reached nearly a month ago when it fell to $33.87 a barrel, the lowest mark since 2004.

Oil began to come off its highs for the session before the inventory report came out after the government reported that retail sales plunged far more than expected in December. The Commerce Department reported Wednesday that retail sales dropped 2.7 per cent last month, more than double the 1.2 per cent decline that Wall Street expected.

For 2008, retail sales were down 0.1 per cent, a sharp turnaround after a 4.1 per cent gain in 2007. It was the first time the annual retail sales figure has fallen on government records going back to 1992. Before 2008, the weakest year for retail sales had been an increase of 2.4 per cent in 2002, the year after the 2001 recession.

The report helped send Wall Street into another tailspin with the Dow Jones industrial average falling more than 300 points and major stock indexes off at least at least 3 per cent.

The department also reported that businesses slashed inventories in November by the largest amount in seven years as they scrambled to cope with a record plunge in sales.

Inventories were reduced by 0.7 per cent in November, even worse than the 0.5 per cent drop analysts expected. It marked the third straight month that businesses have cut their stockpiles, the longest stretch since four straight months of reductions that ended in August 2003.

Despite the decline in the oil prices, the cost of filling up has not changed much. Prices at the pump rose 0.2 cents to $1.792 overnight, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices are 13.2 cents higher than a month ago, but $1.269 below what motorists paid a year ago.

In other Nymex trading, gasoline futures fell 3.2 cents to $1.1165. Heating oil fell 7.74 cents to $1.4367, while natural gas for February delivery fell 19 cents to $4.992 per 1,000 cubic feet.

In London, February Brent crude fell 45 cents to $44.38 a barrel on the ICE Futures exchange.

Mark Williams - The Associated Press

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