Oil prices dip to $69 per barrel as supplies jump

Oil prices tumbled close to $69 per barrel Wednesday afternoon on a government report showing demand for energy remains weak.

Benchmark crude for November delivery fell n early 4 percent, or $2.69, to $69.07 a barrel on the New York Mercantile Exchange. The contract added $1.83 a barrel to settle at $71.76 on Tuesday.

Crude supplies for the week ended Friday grew by 2.8 million barrels, according to the Energy Information Administration. Analysts were expecting a 2.25 million-barrel drop, according to a survey by Platts, the energy information arm of McGraw-Hills Cos.

The same report showed much bigger than expected increases in supplies of gasoline and distillates used for heating oil and diesel fuel, sending prices of both products sharply lower as well.

Prices may grow more volatile later Wednesday during a Federal Reserve meeting later Wednesday. Even with supplies more than ample, oil prices have remained high partly because of the weakening US dollar.

Crude is priced in dollars so it becomes cheaper when the dollar falls. The dollar is at a nearly one-year low against the euro.

To combat the worst recession since the 1930s, the Federal Reserve has kept interest rates at a record low — near zero — and started an assortment of programs designed to encourage borrowing. Critics have complained that the Fed appears to be printing money to pay for the government's spending binge, and that hurts the dollar.

The Fed is expected to keep interest rates the same, but traders will be watching for hints that it may begin to rein in programs designed to support the economy.