Oil falls to $107 despite drop in weekly U.S. inventories

Posted Sep 4th 2008 12:26PM by Joseph Lazzaro
Filed under: Forecasts, Good news, Commodities, Oil

Oil fell $2.24 to $107.11 per barrel Thursday at mid-day despite the fact the U.S. Energy Information Administration announced that weekly crude oil inventories unexpectedly fell by 1.9 million barrels.

Economists surveyed by Bloomberg News had expected crude oil inventories to increase by 450,000 barrels last week.

Gasoline supplies fell by 400,000 barrels to 194.4 million barrels. Meanwhile, refinery capacity rose to 88.7%, compared to 87.3% a week earlier, and 85.7% two weeks ago.

'It's all about slowing global growth'

Energy Trader Jim Dietz said the fact that oil fell despite the unexpected decline in weekly oil inventories underscores "a really troubling oil demand picture."

"Right now, it's all about slowing global growth. The oil market is definitely in sell mode now. The market senses global oil consumption growth will slow in Asia and when you add that to lower oil consumption in the U.S., we could see building inventories, which means oil is headed lower," Dietz said. "We still have to watch [Hurricane] Ike in the Atlantic because it may track toward the Gulf of Mexico but right now lower demand dominates [the market]."

Dietz added that he was currently short unleaded gasoline and oil, with monthly contracts.

The other, major energy commodities also fell Thursday at mid-day. Unleaded gasoline dropped about 3 cents to $2.74 per gallon. Heating oil fell about 3 cents to $3.04 per gallon. Natural gas declined 11 cents to $7.14 per million BTUs.

Oil Analysis: Notch another data point for the oil bears. Next stop for oil: $100. Two or three months ago, could anyone imagine a decline in oil inventories leading to a decline in oil prices? Unfathomable. But today, the economic mood has shifted - - concern about the global economic slowdown builds daily - - and oil is no longer a slam-dunk, one-way calculation for traders. Result: institutional investors are reducing their exposure to oil as an asset, and the bias is lower. OPEC meets next week in Vienna to discuss production, but trader Dietz says they're unlikely to cut production until oil drops to the $85-90 range.

Tags: Asia, emerging markets, gasoline prices, gdp, global growth, globalization, inthenews, oil prices, oil shock, OPEC, U.S. Energy Information Administration