Oil falls below $87 after weekly inventories surge

Posted Feb 6th 2008 1:10PM by Joseph Lazzaro
Filed under: Good news, Commodities, Oil

Oil fell $1.55 to $86.86 at mid-day after crude oil inventories rose by seven million barrels for the week ended February 1 -- well above the consensus estimate of a 2.6-million-barrel increase -- the U.S. Energy Information Administration announced Wednesday.

Meanwhile, gasoline inventories increased 3.6 million barrels and distillates rose 100,000 barrels.

Other oil and natural gas products also fell on the news. Heating oil fell about 3 cents to $2.41, unleaded gasoline declined about 3 cents to $2.23 and natural gas fell 50 cents to $7.99 per million BTUs.

Oil to test $80?

Independent energy trader Jim Dietz told BloggingStocks Wednesday the oil market "is becoming very price-heavy and the bears are piling up."

"The mood is definitely bearish right now. We've got a slowing U.S. economy, building inventories, and very legitimate concerns about decreasing demand in the U.S. There's a decent chance we'll test $80 in the weeks ahead," Dietz said. "If we can close below $87 today that would be another bearish sign." Dietz added that he has oil-short contracts open, both daily and monthly. Dietz also has gasoline-short daily contracts open.

Dietz sees oil testing $75-$80 per barrel and unleaded gasoline testing $2.75-$2.80 per gallon at the retail level, by early spring.

Oil inventories now total 300 million barrels, the EIA said, noting that stockpiles are still down 7.3% from a year ago. Also, gasoline demand for the four weeks ended February 1 was 1% higher than a year earlier, averaging about nine million barrels per day.

"The U.S. gasoline demand increase is slowing and this is also weighing on oil's price," Dietz said.

In addition, U.S. refineries functioned at 84.3% of capacity, down 0.7 percentage points. Analysts had expected refinery capacity to fall by only 0.1 percentage point.

Tags: featured, gasoline, heating oil, natural gas, oil, oil inventories, oil prices