Oil Declines as Credit Crisis Curbs Demand, U.S. Supplies Gain

By Margot Habiby

Oct. 9 (Bloomberg) -- Crude oil fell for a second day as the global economic crisis curbed demand and after the U.S. government reported a bigger-than-expected gain in crude and gasoline inventories.

Oil supplies rose 8.12 million barrels to 302.6 million barrels in the week ended Oct. 3, as imports and output resumed after halting last month for hurricanes, the Energy Department said yesterday. The agency on Oct. 7 cut its 2008 global oil demand forecast by 340,000 barrels to 86.14 million barrels a day.

``The big builds in crude and gasoline were the big surprises in this week's data,'' said Tim Evans, an energy analyst with Citi Futures Perspective in New York, in an e-mail. ``Product-demand numbers were surprisingly weak.''

Crude oil for November delivery fell as much as 55 cents, or 0.6 percent, to $88.40 a barrel in electronic trading on the New York Mercantile Exchange, and was at $88.52 at 7:46 a.m. in Singapore. Futures have fallen 40 percent since reaching a record $147.27 a barrel on July 11.

Yesterday, oil dropped $1.11, or 1.2 percent, to settle at $88.95 a barrel after touching $86.05 a barrel, the lowest since December.

U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999. The figure is down 8.6 percent from the year-earlier period, the department said.

U.S. gasoline demand dropped 9.5 percent last week, the biggest decline in more than three years, as the slowing economy curtailed driving, a MasterCard Inc. report showed Oct. 7.

Gasoline Drops

Gasoline for November delivery fell 3.3 cents, or 1.6 percent, yesterday to $2.0298 a gallon after touching $1.95, the lowest price since Oct. 2, 2007. The motor fuel is down 44 percent from a record $3.631 on July 11.

Supplies of gasoline rose 7.18 million barrels, or 4 percent, to 186.8 million barrels as refinery capacity climbed 8.7 percentage points to 80.9 percent. It was the biggest increase in refinery utilization in records that go back to 1989. Gasoline inventories had the biggest gain in seven years.


Gasoline stockpiles were expected to rise 1.5 million barrels, and refinery utilization was forecast to increase by 6 percentage points, according to the median of analyst estimates in a Bloomberg News survey. Oil inventories were estimated to rise 2.2 million barrels.

Regular gasoline at the pump, averaged nationwide, dropped 3.3 cents to $3.447 a gallon, according to AAA, the nation's largest motorist organization. The price has fallen 16 percent from a July record.

`Steep Downturn'

``We're entering a steep cyclical downturn across almost all commodities,'' said Helen Henton, head of commodity research at Standard Chartered Plc in London. ``The demand picture will look increasingly worrisome for the next six months regardless of what central banks do.''

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point to shore up confidence and global growth.

``Forget even about $70 a barrel next year if there's a major recession,'' Leo Drollas, deputy executive director at the Center for Global Energy Studies, said yesterday in an interview in Amsterdam. Oil ``will go slowly down further because the world economy is heading for the rocks.''

The Organization of Petroleum Exporting Countries may meet Nov. 18 in Vienna to discuss the effect of the financial crisis on oil markets, according to Libya's top oil official, National Oil Corp. Chairman Shokri Ghanem. The next scheduled meeting of ministers is Dec. 17 in Algeria.

Brent crude oil for November settlement fell 30 cents, or 0.4 percent, to $84.36 a barrel on London's ICE Futures Europe exchange.

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.