Price of oil still falling as supplies grow


THE price of oil continues to decline on the expectation that world markets will be flush with extra supplies this year.

Benchmark US crude yesterday fell by US$1.17 to finish at a seven-month low of US$92.81 per barrel in New York. Oil is down nearly 13 percent since the beginning of May.

Brent crude, which helps set the price of oil imported into the US, fell by US$1.70 to finish at US$109.75 per barrel in London.

Prices fell as a report showed that US crude supplies had climbed to the highest level in 22 years. Supplies grew last week by 2.1 million barrels, according to the Energy Information Administration. That's a bigger increase than analysts expected, and more could be on the way.

Japan's Kyodo news agency reported that the US will ask other countries to release spare oil reserves when the Group of Eight meets this Friday. The report follows rumors earlier this year that Western nations were planning a coordinated release of spare supplies.

The White House wouldn't comment about the report.

Peter Donovan, a broker at Vantage Trading, said oil fell sharply in the afternoon as the Kyodo headline was passed around the New York Mercantile Exchange, where futures are traded.

Kyodo said President Barack Obama will ask leaders of other G-8 countries - Britain, Canada, France, Germany, Italy, Japan, Russia - to make spare supplies available to refineries this summer. The release would be geared toward keeping prices in check in July, when the European Union begins a ban on oil imports from Iran.

The US and other industrialized countries tried a similar tactic last summer after the Libyan rebellion shut down that country's oil fields. The move had only limited success, however. Oil prices fell temporarily but ended 2011 higher than they started.

Oil prices have been falling on signs that demand is cooling while supplies are building. Major oil producers like Saudi Arabia delivered more supplies to the world market. Meanwhile, data from the US and China suggest economic growth is moderating, while Europe is teetering on recession.

If the eurozone cannot solve its debt problems, it will weaken an economy that consumes 18 percent of the world's oil. It also could contribute to a global banking crisis that would hurt the US, China and other countries.

"It's making a lot of guys nervous around here," Donovan said.

In other energy futures trading, heating oil lost 3.54 cents to finish at US$2.8976 per gallon, while wholesale gasoline fell dropped by 2.32 cents to end at US$2.9209 per gallon. Natural gas rose by 11.8 cents to end at US$2.618 per 1,000 cubic feet.

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