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Oil falls sharply with supplies on the rise

OIL prices fell sharply yesterday for a second straight day as growing supplies of crude, gasoline and heating oil exposed how badly the recession has cut into energy demand.

Benchmark crude for November delivery fell 4.4 percent, or US$3.08, to settle at US$65.89 a barrel on the New York Mercantile Exchange. The contract tumbled US$2.79 to settle at US$68.97 on Wednesday.

Prices for gasoline and heating oil also fell sharply.

Oil prices have been pushed higher for months by the weak dollar and by strengthening equities markets, but analyst Phil Flynn of PFGBest said the fundamentals are increasingly hard to ignore.

A government report Wednesday showed a larger-than-expected buildup in crude supplies.

Oil demand fell by 3 percent, the government said, and gasoline supplies surged by more than 5 million barrels even though refineries took in 316,000 fewer barrels of crude each day.

Still, the U.S currency continues to influence prices because a weak dollar effectively makes dollar-based crude cheaper.

Investors watched the opening yesterday of a two-day meeting in Pittsburgh for the world's 20 most powerful leaders. News from that meeting could sway the value of the dollar and oil.

The Energy Department's Energy Information Administration said yesterday in its weekly report that natural gas inventories held in underground storage grew by 67 billion cubic feet, which was in line with expectations.

Still, natural gas supplies are abundant. Levels are 16 percent above the five-year average, according to the government data. Prices by early this month had fallen to seven-year lows, far enough that there has been a surge to buy natural gas futures.

That trend continued yesterday and prices rose more than 3 percent.

In other Nymex trading, gasoline fell 6.5 cents to settle at US$1.6366 per gallon and heating oil for October delivery fell 7.8 cents to settle at US$1.6814 a gallon. Natural gas rose 9.5 cents to settle at US$3.955 per 1,000 cubic feet.

In London, Brent crude fell US$3.17 to settle at US$64.82 on the ICE Futures exchange.


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