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Oil drops, settles below US$77 after supply report

OIL prices tumbled yesterday, dropping below US$77 a barrel after the government reported that petroleum supplies continue to grow as American drivers and businesses cut way back on energy use.

Benchmark crude for December delivery gave up US$2.34 to settle at US$76.94 a barrel on the New York Mercantile Exchange.

The Energy Information Administration said in its weekly report that oil and gas supplies grew more than expected last week, even though many oil companies have shuttered refineries as fuel consumption slumps.

The government report said refineries have slowed production to the lowest levels since September 2008, and they're importing nearly 15 percent less crude than last year.

Peter Beutel, an analyst at Cameron Hanover, said traders are increasingly disappointed by the lack of consumption.

"We've been waiting since March for a rising stock market to lead to a better economy and then more oil demand, and we just haven't seen it yet," Beutel said. "You really need employment numbers to start going back up."

For most of the year, oil prices increased despite tepid consumer demand. Prices doubled from March to October as the dollar weakened and investors looked to crude and other commodities as relatively safe places to put their money. A weaker dollar also helps investors holding strong international currencies buy oil contracts.

"It's not the oil refineries who are buying most of these oil contracts," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "It's the financial companies, the ETFs, and other people who are patient enough to sit and wait for prices to go up."

As oil prices soared, they tugged gas and diesel prices higher, boosting fuel costs for everyone.

The International Energy Agency warned yesterday that any economic recovery could suffer if energy prices continue to rise. In a report released yesterday, the agency questioned how much more oil the U.S. actually needs.

"It would seem that the 'real' U.S. economy, as opposed to the financial one, is struggling to recover, despite the end of the recession," the IEA said.

The IEA increased slightly its forecast for global oil demand to 84.8 million barrels a day in 2009, 1.7 percent or 1.5 million barrels less than last year. In October, the agency's forecast for 2009 was of 84.4 million barrels a day.

At the pump, gas prices have slid all month, dropping less than a penny overnight to a new national average of US$2.65 a gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 17.2 cents more expensive than it was last month and 44.8 cents more than a year ago.

In other Nymex trading, heating oil lost 6.48 cents to settle at US$1.991 a gallon. Gasoline for December delivery gave up 5.22 cents to settle at US$1.9405 a gallon. Natural gas for December delivery fell 13.3 cents to settle at US$4.37 per 1,000 cubic feet.

In London, Brent crude for December delivery fell US$1.93 to settle at US$76.02 on the ICE Futures exchange.


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