July 1 (Bloomberg) -- Crude oil and gasoline fell after a U.S. government report showed that fuel supplies in the world’s biggest energy-consuming country rose more than forecast.

Gasoline stockpiles increased 2.33 million barrels to 211.2 million in the week ended June 26, the Energy Department said. Inventories were estimated to rise by 2 million barrels, according to a Bloomberg News survey. Stockpiles of distillate fuel, a category that includes diesel and heating oil, gained 2.9 million barrels to 155 million, the highest since 1987.

“Supply and consumption remain really bad,” said Bill O’Grady, the chief markets strategist at St. Louis-based Confluence Investment Management LLC, an investment advisory and management firm. “It’s hard to make a bullish case for anything.”

Crude oil for August delivery fell 58 cents, or 0.8 percent, to settle at $69.31 a barrel at 2:42 p.m. on the New York Mercantile Exchange. Prices are up 55 percent this year. Futures were up as much as $1.96, or 2.8 percent, to $71.85 before the department released its weekly supply report at 10:30 a.m. in Washington.

“The market’s rally was overextended early today and when we got the bigger-than-expected gains in gasoline and distillate,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The product gains are a sign that demand for fuel isn’t improving.”

Gasoline for August delivery declined 4.3 cents, or 2.3 percent, to end the session at $1.859 a gallon in New York.

Pump prices fell along with futures. Regular retail gasoline, averaged nationwide, slipped 0.3 cent to $2.63 a gallon, AAA, the nation’s biggest motoring organization, said today on its Web site. Retail prices have dropped 6.3 cents in nine days.

Seasonal Peak

U.S. gasoline pump prices have peaked and won’t go higher during this year’s summer driving season, AAA said. The average price won’t rise above the June 21 high of $2.693 a gallon, Geoff Sundstrom, a Heathrow, Florida-based spokesman for the organization, said today in a telephone interview. U.S. gasoline demand peaks between the Memorial Day holiday in late May and Labor Day in early September.

Distillate-fuel supplies were forecast to increase 1.5 million barrels, according to the median of 15 analyst responses in the Bloomberg News survey. Last week’s increase left distillate supplies 28 percent higher than the five-year average for the period.

Lower Demand

Total U.S. daily fuel demand in the four weeks ended June 26 was down 5.8 percent from a year earlier, the Energy Department said. Gasoline consumption averaged 9.17 million barrels a day, up 0.9 percent. Distillate-fuel demand over the period fell 9.4 percent to 3.4 million barrels a day.

“Prices are higher than justified by the fundamentals of the market,” said Chip Hodge, who oversees a $9 billion natural-resource-company bond portfolio as managing director at MFC Global Investment Management in Boston. “The demand picture doesn’t look great. Distillate inventories keep climbing because we aren’t seeing industrial demand recover.”

About 60 million barrels of refined oil products are being stored on ships at sea, according to Tsakos Energy Navigation Ltd. Chief Executive Officer Nikolas Tsakos. About 85 oil- product and chemical carriers are storing fuel, he said.

“This is becoming a trend, and it is healthy for the market for this trend to continue,” Tsakos said on a conference call organized by Capital Link Shipping.

Crude oil supplies fell 3.66 million barrels to 350.2 million, the report showed. Inventories have dropped 15.8 million barrels in the past four weeks, the biggest four-week decline in a year. Stockpiles last week were 8 percent higher than the five-year average for the period, the department said.

Cushing Inventories

Inventories at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude oil is delivered, rose 363,000 barrels to 28.6 million last week, the first increase since May.

Brent crude oil for August settlement declined 51 cents, or 0.7 percent, to end the session at $68.79 a barrel on London’s ICE Futures Europe exchange.

Oil in New York increased 41 percent last quarter, the biggest gain since 1990. Prices have rallied as rebounding world equity markets and a weaker dollar encouraged investors to buy the commodity as an alternative investment and inflation hedge.

OPEC Supplies

The Organization of Petroleum Exporting Countries increased production for a third month in June, a Bloomberg News survey showed today. Oil output averaged 28.23 million barrels a day last month, up 55,000 from May, according to the survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 25.86 million barrels a day, 1.015 million more than their target.

Crude oil volume in electronic trading on the Nymex was 472,579 contracts as of 3:06 p.m. in New York. Volume totaled 536,929 contracts yesterday, 8 percent higher than the average over the past three months. Open interest was 1.16 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: July 1, 2009 16:33 EDT