Oil prices down 3 percent, trading below $77 after report

Oil prices tumbled in late trading on Thursday, dropping around 3 percent below $77 a barrel after the US government reported that petroleum supplies continue to grow as American drivers and businesses cut way back on energy use.

Benchmark crude oil futures for December delivery gave up $2.34 to settle at $76.94 a barrel on the NYMEX, while in London, Brent crude for December delivery fell $1.93 to settle at $76.02 on the ICE Futures exchange.

The Energy Information Administration said in its weekly report that oil and gas supplies grew more than expected last week, even though many oil companies have shuttered refineries as fuel consumption slumps. The government report said refineries have slowed production to the lowest levels since September 2008, and they’re importing nearly 15 percent less crude than last year.

Peter Beutel, an analyst at Cameron Hanover, said oil traders are increasingly disappointed by the lack of consumption. “We’ve been waiting since March for a rising stock market to lead to a better economy and then more oil demand, and we just haven’t seen it yet,” Beutel said. “You really need employment numbers to start going back up.”

For most of the year, oil prices increased despite tepid consumer demand. Prices doubled from March to October as the dollar weakened and investors looked to crude and other commodities as relatively safe places to put their money. A weaker dollar also helps investors holding strong international currencies buy oil contracts.

“It’s not the oil refineries who are buying most of these oil contracts,” said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. “It’s the financial companies, the ETFs, and other people who are patient enough to sit and wait for prices to go up.”

The IEA warned Thursday that any economic recovery could suffer if energy prices continue to rise. In a report released Thursday, the agency questioned how much more oil the U.S. actually needs.

“It would seem that the ‘real’ US economy, as opposed to the financial one, is struggling to recover, despite the end of the recession,” the IEA said.

The IEA increased slightly its forecast for global oil demand to 84.8 million barrels a day in 2009, 1.7 percent or 1.5 million barrels less than last year. In October, the agency’s forecast for 2009 was of 84.4 million barrels a day.

Tags:  oil prices