Oil Trades Near 22-Month Low on U.S. Supply Gain, Fuel Use Drop

By Mark Shenk

Nov. 20 (Bloomberg) -- Crude oil futures fell for a fifth day, trading near a 22-month low after a U.S. government report that showed inventories climbed more than forecast as fuel demand dropped.

Supplies rose 1.6 million barrels to 313.5 million barrels last week, the Energy Department said yesterday. Stockpiles were forecast to rise 1 million barrels, according to a Bloomberg News survey of analysts. U.S. fuel use during the past four weeks averaged 19.1 million barrels a day, down 7 percent from a year ago.

``Fuel consumption remains depressed,'' said Bill O'Grady, chief markets strategist at Confluence Investment Management in St. Louis. ``The economy remains the major focus.''

Crude oil for December delivery fell 48 cents, or 0.9 percent, to $53.14 a barrel at 10:19 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, futures touched $52.79, the lowest since Jan. 23, 2007.

Oil has dropped 64 percent since reaching a record $147.27 on July 11. Yesterday, December futures fell 77 cents, or 1.4 percent, to $53.62 a barrel, the lowest settlement since Jan. 22, 2007. The more active January futures contract is down 45 cents, or 0.8 percent, at $53.65 a barrel. December futures expire at the close of trading today.

Gasoline inventories rose 539,000 barrels to 198.6 million barrels in the week ended Nov. 14, the report showed. Analysts surveyed by Bloomberg News were split over whether supplies of the motor fuel increased or declined.

`Shooting for $50'

U.S. fuel demand fell 5.2 percent in the first 10 months of this year, the biggest drop since 1981, the American Petroleum Institute said in a report yesterday.

``The market is shooting for $50,'' said Dan Flynn, an energy analyst at Alaron Trading Corp. in Chicago. ``Prices should continue to slide, given demand and the anticipated worsening of the economy.''

Speculation that the recession will further curb demand is helping send prices lower. U.S. housing starts and permits for future construction both dropped to record lows in October, signs the housing downturn may extend into a fourth year.

Construction starts on housing fell 4.5 percent in October, less than economists forecast, to an annual rate of 791,000 that was the lowest since records began in 1959, the Commerce Department said in Washington.

``What oil prices do in the months ahead depends more on the economy than anything else,'' said Steve Maloney, a risk- management consultant for Stamford, Connecticut-based Towers Perrin. ``Until we have hope of an economic rebound, prices are going to stay under pressure.''

Brent crude oil for January settlement declined 12 cents to $51.72 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Jan. 11, 2007.

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