Oil Drops Below $100 a Barrel, Gasoline Tumbles, After U.S. Supplies Surge

Oil fell below $100 a barrel in New York and gasoline tumbled the most in more than two years after an Energy Department report showed that U.S. supplies surged and fuel demand slipped.

Crude dropped 5.5 percent after the department said stockpiles jumped 3.78 million barrels to 370.3 million last week. Gasoline inventories unexpectedly increased 1.28 million barrels to 205.8 million, the first gain in 12 weeks. Total fuel consumption declined 0.9 percent to 18.2 million barrels a day, the lowest level since June 2009.

“We have a tremendous glut,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “The rally in commodities appears to be over. We’re going to see prices work their way lower in coming weeks.”

Crude oil for June delivery fell $5.67 to settle at $98.21 a barrel on the New York Mercantile Exchange. Prices are up 29 percent from a year ago.

Gasoline for June delivery dropped 25.69 cents, or 7.6 percent, to settle at $3.1228 a gallon in New York. It was the biggest single-session decrease since Feb. 17, 2009.

Volume for gasoline was a record 243,397 contracts in electronic trading today on the exchange, according to Alexandra Siff, a spokeswoman for exchange owner CME Group Inc.

CME Group Inc. suspended trading of gasoline, crude and heating oil on the Nymex for five minutes starting at 12:06 p.m., said Laurie Bischel, a spokeswoman for the exchange in Chicago. Trading was stopped after June-delivery gasoline fell 25 cents, the daily limit. Limits were widened to 50 cents a gallon for gasoline and heating oil and $20 a barrel for crude.

Investors ‘Whipsawed’

“Investors have been whipsawed over the last week,” said Stephen Schork, president of the Villanova, Pennsylvania-based Schork Group Inc. “The market will remain extremely volatile.”

Regular gasoline at the pump, averaged nationwide, rose 1.1 cents to $3.962 a gallon yesterday, the first increase in six days, AAA said on its website. The price climbed to $3.985 on May 4, the highest since July 24, 2008.

The Standard & Poor’s GSCI Index of 24 raw materials dropped 11 percent last week, the most since 2008, as slower growth in U.S. services and fewer German manufacturing orders stoked concern the economic recovery is faltering. Oil fell 15 percent last week following the death of Osama bin Laden. The index was down 3.9 percent to 681 at 3:24 p.m.

Two-Year High

Crude stockpiles climbed more than twice as much as projected last week to the highest level since May 2009, according to the department. Gasoline inventories increased the most since the first week of February.

Supplies of crude were forecast to advance 1.5 million barrels, according to the median of 16 analyst estimates in a Bloomberg News survey. Gasoline stockpiles were projected to fall 750,000 barrels.

Gasoline inventories on the East Coast, known as PADD 1, surged 3.51 million barrels to 51.5 million in the seven days ended May 6, the first gain in 11 weeks. Supplies rebounded from the lowest level since October 2008.

“The numbers were pretty bearish, especially for gasoline,” Schork said. “Gasoline supplies increased on the East Coast for the first time in more than two months. They had been getting dangerously low.”

Consumption of the motor fuel dropped 1.3 percent to 8.83 million a day last week, the lowest level since the seven days ended February 11, the report showed.

‘Winter Doldrums’

“Normally, demand rises at this time of year ahead of the summer driving season,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Instead we’re looking at the levels associated with the winter doldrums. This is in part a response to high gasoline prices.”

U.S. gasoline consumption peaks between the Memorial Day holiday in late May and Labor Day in early September, when Americans traditionally take vacations.

Refineries operated at 81.7 percent of capacity, 1.1 percentage points lower than the prior week. That’s down from 88 percent of capacity a year earlier. A 0.3 percentage-point increase was forecast.

Futures also dropped as the dollar climbed against the euro, reducing the appeal of commodities to investors. The euro slipped on speculation European leaders are slowing the drive to grant Greece additional aid, bolstering concern the nation will have to restructure its debt.

The dollar rose 1.4 percent against the euro to $1.4211 after increasing to $1.4172 earlier today.

Prices also declined on concern that China will further tighten monetary policy to cool price increases, reducing economic growth in the world’s biggest energy consuming country.

Crude has climbed as much as 26 percent this year as unrest spread in the Middle East and North Africa. Oil is up 7.5 percent this year as of the close of trading today.

Rebel Advance

Libyan rebels advanced west toward the strategic oil town of Brega today. About 1.3 million barrels a day has been lost from Libya, holder of Africa’s largest reserves, in an armed uprising against Muammar Qaddafi’s four-decade rule.

“There are two big factors that will dictate where oil prices go,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “On the one hand, there are worries about the economy and what that will mean for demand, and on the other, there are issues like Libya and what they’ll mean for supply.”

Brent crude for June settlement slipped $5.06, or 4.3 percent, to end the session at $112.57 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 905,935 contracts as of 3:23 p.m. in New York. Volume totaled 819.7 yesterday, 12 percent above the average of the past three months. Open interest was 1.65 million contracts.

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

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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