Crude oil fell below $114 Wednesday after a U.S. Energy Information Administration report (pdf) indicated weekly oil inventories rose more than double forecast.

U.S. oil inventories increased 3.8 million barrels for the week ending April, 25, 2008. Economists surveyed by Bloomberg News had expected a 1.9 million barrel increase.

Oil fell $1.78 to $113.85 per barrel Wednesday at mid-day, after trading above $116 earlier in the session. The other major energy commodities also fell at mid-day. Heating oil declined about 3 cents to $3.21 per gallon, unleaded gasoline fell 2 cents to $2.92 per gallon, and natural gas declined dropped about 9 cents to $10.76 per million BTUs.

Further, at 319.9 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year, the EIA said.

Meanwhile, gasoline inventories fell 1.5 million barrels and distillate stocks increased 1.1 million barrels.

Refineries operated at 85.4% of their operable capacity last week, down slightly from 85.6% a week earlier.

Oil bulls and bears jockey

Independent energy trader Jim Dietz told BloggingStocks Wednesday the oil market is jockeying between fundamentals and short-term investor activity.

"Except for last week, U.S. fundamentals still point to price declines. We have rising oil inventories, and only modest demand for gasoline. Gasoline demand in the U.S has been declining for three months. That should put downward pressure on oil prices," Dietz said. "Unfortunately oil futures remain an investment of choice for a lot of investment and hedge funds, and they're propping up prices. Oil really, fundamentally, should not be over $100 per barrel."

Dietz said a turnaround in the U.S. economy, and the rise in the stock market it would likely produce, could, paradoxically, take some of the price pressure out of oil. "Generally when the economy grows oil rises, but a growing economy now would change investors' attitudes toward stocks, and a lot of the money in oil futures would rotate back into stocks, and oil would drop, in my view," Dietz said. Dietz added that he is presently flat, or has no open energy trading positions.

Dietz's outlook for oil in Q2 2008? "I still see a move back toward $100. I'm in the minority with that view, I know, but I still will side with the fundamentals over investment fund flows," Dietz said.