Nov. 12 (Bloomberg) -- Crude oil fell to a four-week low after a government report showed a larger-than-forecast gain in stockpiles as sinking demand pushed refinery operating rates to the weakest level in more than a year.

Supplies of crude oil rose 1.76 million barrels to 337.7 million last week, the Energy Department report showed. Analysts surveyed by Bloomberg News forecast a 1 million-barrel gain. Refineries operated at the slowest pace since September 2008, when units were shut because of hurricanes Gustav and Ike.

“The big problem is that demand is weak, and refiners are starting to feel pain,” said Carl Larry, president of Oil Outlooks & Opinions LLC, a Houston-based energy adviser. “It’s good for consumers that crude-oil stocks increased, but with demand so low, refiners aren’t going to need it to make gasoline and other fuels.”

Crude oil for December delivery fell $2.34, or 3 percent, to $76.94 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 14. Oil is up 73 percent this year.

Inventories of crude oil at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, surged 5.6 percent to 27 million barrels in the week ended Nov. 6, the biggest gain since January.

Refineries operated at 79.9 percent of capacity, down 0.7 percentage point from the prior week, the report showed. The average rate during the first week of November over the previous five years was 87.1 percent of capacity. A 0.2 percentage-point gain was forecast for the most recent report, according to the median of responses by 16 analysts surveyed by Bloomberg News.

Weak Demand

“Despite talk of an improving economy, demand is very weak,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Refiners are reacting by cutting operating rates, which are well below average for this time of year.”

U.S. fuel consumption tumbled 4.3 percent to 18.3 million barrels a day, the lowest since June, according to the report.

Imports of crude oil increased 6.5 percent to 8.66 million barrels a day, the report showed. Fuel imports dropped 3.3 percent to 2.51 million.

Gasoline stockpiles rose 2.56 million barrels to 210.8 million. A 350,000 barrel drop was forecast, according to the analyst survey.

Gasoline for December delivery fell 5.22 cents, or 2.6 percent, to settle at $1.9405 a gallon in New York.

Oil may drop as low as $60 a barrel next year because of ample crude oil and fuel inventories in wealthy nations, said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington.

‘Too Much’

Crude-oil supplies are currently equivalent to a “61-day forward cover in Organization for Economic Cooperation and Development countries while normal levels would be 55 days,” Sieminski said in a telephone interview today. “That’s 300 million barrels of oil too much, with daily demand estimates of about 50 million barrels.”

The dollar gained against the euro, diminishing the appeal of commodities as an alternative investment. The U.S. currency traded at $1.4855 against the euro today, up from $1.4987 yesterday.

“This report was bearish across the board, especially gasoline, and the market took a big hit,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The dollar is showing a lot of strength, which initially sparked this selloff overnight.”

OPEC Output

Crude production by members of the Organization of Petroleum Exporting Countries rose in October to the highest level since January and the group may increase it further at a meeting next month if oil prices keep gaining, according to an International Energy Agency report today.

Output from 11 members with quotas rose by 150,000 barrels a day from September, to 26.48 million barrels a day, the report showed. Compliance with cuts agreed to late last year slipped to 61 percent in October, from 64 percent in September, according to the monthly report from the Paris-based IEA. Iraq is the only member without a production target.

The IEA raised its oil-demand forecast today. Global oil consumption is likely to average 86.2 million barrels a day next year, 140,000 barrels more than estimated last month. The IEA also increased its forecast for consumption this year to 84.9 million barrels a day, up 220,000 barrels from October.

$100 Oil

The price of oil will rise to $100 a barrel next year, billionaire investor T. Boone Pickens said today in Washington. The world has “maxed out” at 85 million barrels a day of production, Pickens said at a conference held by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News.

Brent crude for December settlement fell $1.93, or 2.5 percent, to end the session at $76.02 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 637,311 contracts as of 2:53 p.m. in New York. Volume totaled 500,005 contracts yesterday, 9.7 percent lower than the average over the past three months. Open interest was 1.25 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: November 12, 2009 16:09 EST