OIL prices dipped below US$100 a barrel yesterday as ample increases in US crude and gasoline supplies added to mounting evidence that a rough economy is forcing Americans to drive less.
Light, sweet crude for November delivery fell US$2.11 to settle at US$98.53 a barrel on the New York Mercantile Exchange. Prices traded erratically, however, rising as high as US$102.84 overnight and falling to as low as US$95.95. In London, November Brent crude fell US$2.84 to settle at US$95.33 a barrel on the ICE Futures exchange.
Crude prices have seesawed between positive and negative territory in recent days as investors wait to see if lawmakers will approve a US$700 billion US financial bailout plan. On Tuesday, prices rose US$4.27 to settle at US$100.64 a barrel, recovering from a US$10.52 drop the previous day - the second largest one-day dollar decline ever.
Wednesday's losses were tied to data showing rising US fuel supplies but falling demand.
The Energy Department's Energy Information Administration said in its weekly report that crude stocks rose by 4.3 million barrels, or 1.5 percent, to 294.5 million barrels for the week ending Sept. 26. Analysts had expected stocks to rise or fall of 1.5 million barrels, according to a survey by energy research firm Platts.
At the same time, gasoline inventories rose by 900,000 barrels, or 0.5 percent, to 179.6 million barrels. Analysts expected stockpiles of the motor fuel to fall in the range of 1 million to 3 million barrels.
Fuel consumption for the four-week period ended Sept. 26 reached about 19 million barrels a day, down 7 percent from the same period a year ago, according to the EIA.
Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois, said the supply increases show that the Gulf Coast energy infrastructure is steadily resuming operations after shutdowns caused by Hurricanes Ike and Gustav - but also that US consumers and businesses aren't in a position to resume their old fuel-guzzling habits.
"It reinforces the weak demand argument that's been weighing on the markets," Ritterbusch said. "At the same time, we're seeing very strong recovery in production of both crude oil and products in the aftermath of the hurricanes."
Senate leaders scheduled a vote for Wednesday on a version of the emergency rescue bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House of Representatives. The House rejected a similar plan Monday by a vote of 228-205.
But traders were skeptical a bailout of bad mortgage debt would quickly reverse slowing global economic growth and weakening demand for crude.
"It would be good news to avoid further turmoil, but it's too early to assume a new package would lead to a recovery in the US," said Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo.
A slump in energy demand has accelerated in Asia. In India, domestic oil product sales totaled 2.41 million barrels per day in August, the lowest level this year, according to Barclays Capital research. In the same month, Japan's oil demand fell by 8.4 percent.
US energy demand also continues to wane, according to the weekly EIA report. Demand for gasoline over the four weeks ended Sept. 26 was 4.5 percent lower than a year earlier, averaging more nearly 8.9 million barrels a day.
At the same time, US refineries ran at 72.3 percent of total capacity on average, a gain of 5.6 percentage point from the prior week, according to the EIA. Analysts expected capacity to rise in a range of 5 percent to 8 percent to 71.7 percent to 74.7 percent.
Inventories of distillate fuel, which include diesel and heating oil, fell by 2.3 million barrels to 123.1 million barrels for the week ended Sept. 26. Analysts expected distillate stocks to slip by 1 million to 2 million barrels.
The continuing strengthening of the dollar also helped push down oil prices.
Investors tend to buy into commodities like oil when the dollar weakens and as a hedge against inflation and usually sell those investments when the greenback gains.
On Wednesday, the euro fell to US$1.4015 from US$1.4083 late Tuesday in New York.
In other Nymex trading, heating oil futures fell 4.78 cents to settle at US$2.8469 a gallon, while gasoline futures lost 9.77 cents to settle at US$2.36 a gallon. Natural gas futures rose 29 cents to settle at US$7.728 per 1,000 cubic feet.