Oil prices fall as U.S. supplies grow

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NEW YORK - A "build" and a "Twist" knocked oil prices to the floor on Wednesday.

In the morning, the government announced a surprise increase, or build, in U.S. oil supplies. That told investors that America has a bounty of crude and less need to import more from foreign countries. Then the Federal Reserve extended an interest-rate reduction program known as Operation Twist, but declined to take more aggressive steps to boost the economy.

Together, they sent the price of oil to a nine-month low.

Benchmark U.S. crude dropped $2.23, or 2.7 percent, to end the day at $81.80 per barrel on the New York Mercantile Exchange. That's the lowest level since October.

Brent crude, which is used to price much of the oil imported into the U.S., lost $3.07 to finish at $92.69 per barrel in London. That's Brent's lowest finish since December 2010.

Wednesday's drop was among the biggest in a nearly two-month swoon that has slashes 23 percent off the price of oil.

The Energy Information Administration said oil supplies grew by 2.9 million barrels last week. That surprised analysts who had expected a decline of 600,000 barrels. Oil supplies have risen this year to the highest level since 1990, thanks to a boom in North American production.

"The U.S. is flush with oil right now," independent analyst and trader Stephen Schork said. "And if you factor in the economic mess in Europe, slower economic growth in China, and probably overproduction from the Saudis in preparation for the Iranian oil embargo, the world has a comfortable supply" of oil.

Oil prices fell further in the afternoon when the Federal Reserve said it was concerned about a weak jobs market in the U.S. The Fed, which concluded a two-day meeting on Wednesday, said it would try to spark more consumer spending and borrowing by keeping long-term interest rates low.

Michael Lynch, president of Strategic Energy & Economic Research, said many investors were hoping for stronger action by the Fed. Absent that, they focused instead on its dour outlook for the economy.

Keeping interest rates low "is kind of like kissing your sister," Lynch said. "You're doing something, but it's not as big of a deal as you'd expected."

What traders wished for was another round of Fed bond purchases. The Fed on two previous occasions purchased a total of more than $2 trillion in bonds. Those bond purchases made it easier for investors to raise money, and many pumped that money into commodities like oil that were considered safe bets given rising demand from developing nations like China.

Oil's recent retreat has been good news for motorists, though.

Gasoline prices have tumbled by nearly 45 cents per gallon, on average, since the first week of April. The national average fell by a penny to $3.487 per gallon (92 cents a liter) on Wednesday, according to auto club AAA, Wright Express and Oil Price Information Service.

In other futures trading, heating oil lost 4.77 cents to end at $2.5874 per gallon while wholesale gasoline lost 5.13 cents to finish at $2.5902 per gallon. Natural gas lost 2.8 cents to end at $2.517 per 1,000 cubic feet.

[fiberglass3]

Another important point is that natural gas is now being utilized in transportation. The cost is half of gasoline.

In our area several companies are now running their truck fleet on natursl gas. Most of these companies have also installed refueling stations for automobiles. The conversion cost for the option of burning gasoline or natural gas is not excessive.

[Ulgnud]

Yet price gouging for energy products still far exceeds what can be justified by the lower prices. I forgot. Obama wanted high prices. He said so himself on national TV.

[Freedomaphile]

This is the same thing that oil and gasoline prices have done for years.

Demand starts rising with production static or sometimes production drops with demand static and the price goes up.

The higher price gets more production going and people drive less and the price drops.

But the total available oil for production has been dropping relative to demand since the 1970s and so the overall trend has been up.

The day is coming when the total available oil for production will be less than demand, and then prices will really go up.

[saber72]

Same ol thing. When the price of a barrel of oil goes up, it seems like the gas price goes up with it. When the price of a barrel goes down, gas seems to take forever to catch up. Maybe its just my cynicism, I don't know.

It was one of the Republican talking points though. Drill baby drill. Yet under Obama, U.S. oil production and drilling is at it's highest point since 2007. Look up the Bakken oil fields for some good reading. Also if you you need a job, that is the place to go!

Here is a good article about gas prices/speculators:
http://thinkprogress.org/economy/2012/02/22/430184/blame-oil-speculators-for-gas-prices/?mobile=nc

[1stlttightwad]

I thought so too regarding the gas price relative to oil price..A station owner explained it this way and it makes sense. When oil goes up the gas goes up quicker because if it didn't the NEW gas costs more than the old gas..Example $3000 of gas in the ground, next shipment costs him $4000. Next shipment cost $5000 and then the price goes down on gas, yet he has paid $5000 for the gas already in the ground. He has to average the new gas price vs the old gas in his pump prices.

[hsinco-2009]

Yet, Repug talking points say under Obama production is lagging.

Such lies that come from the Regressives!