Oil Falls on Bigger-Than-Expected Supply Gain, Demand Decline

Oil Falls on Bigger-Than-Expected Supply Gain, Demand Decline

Oct. 1 (Bloomberg) -- Crude oil fell after a U.S. government report showed a bigger-than-forecast increase in supplies as fuel consumption dropped to the lowest since 2001.

Inventories rose 4.28 million barrels to 294.5 million last week, the Energy Department said today. Stockpiles were forecast to climb 2.75 million barrels, according to a Bloomberg News survey. Imports and refinery operations increased after storms curtailed supplies last month. Fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001.

``Things are going to get worse as far as the bulls are concerned,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Imports will remain high and refineries are coming back. Prices are now headed for $90.''

Crude oil for November delivery fell $2.11, or 2.1 percent, to settle at $98.53 a barrel at 2:42 p.m. on the New York Mercantile Exchange. Prices are down 33 percent from the record $147.27 a barrel reached on July 11.

Crude-oil imports increased 26 percent to 8.99 million barrels a day, the biggest one-week percentage gain since November 1997. Imports averaged 7.14 million barrels a day in the week ended Sept. 19, the lowest since January 2000, because ports were shut along the Gulf of Mexico in the aftermath of hurricanes Gustav and Ike.

Refineries operated at 72.3 percent of capacity last week, up 5.6 percentage points from the previous week, the report showed. It was the biggest weekly rise in utilization since October 2002.

Delayed Cargoes

``It shouldn't have been a surprise because we knew delayed cargoes were going to eventually arrive,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``The market is hypersensitive right now because of what's happening in Washington.''

Prices also dropped on skepticism that a $700 billion bank- rescue plan will stave off a recession in the U.S., which consumes 24 percent of the world's crude oil.

The benchmark index for U.S. equities jumped the most in six years yesterday as expectations grew that lawmakers will salvage the rescue package to buy bad loans from banks. Even with yesterday's advance, the S&P 500 had its worst month since 2002 in September, declining 9.1 percent. The index tumbled 8.9 percent in the third quarter.

``The economy is going to continue to be a drag,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut.

Manufacturing in the U.S. contracted in September at the fastest pace since the last recession as sales slowed and the credit crisis deepened.

Factory Index

The Institute for Supply Management's factory index dropped to 43.5, the lowest since October 2001, from 49.9 in August, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

South Korea imported less oil last month compared with August as the outlook for the country's economy worsened. Imports fell to 69 million barrels from 70.3 million in August, the Ministry of Knowledge Economy said in an e-mailed statement today. South Korea was the world's fifth-biggest oil importer in 2006, according to the U.S. Energy Department.

Futures declined 28 percent in the third quarter, the largest drop since 1991. Oil slumped $10.52, or 9.8 percent, to $96.37 a barrel, on Sept. 29, the most in percentage terms since Nov. 15, 2001, as the Standard & Poor's index of 500 stocks tumbled the most since the 1987 crash.

A week earlier, prices jumped a record 16 percent. Such swings have increased volatility to its highest since the first Gulf War in 1991.

``The extreme nervousness of the market is reflected in some of the greatest volatility we've had in the history of oil trading,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``We went from a record gain to an almost-record drop, all within a week.''

Brent crude oil for November settlement declined $2.84, or 2.9 percent, to settle at $95.33 a barrel on London's ICE Futures Europe exchange.

BLOOMBERG