Oil Falls as Government Report Shows Adequate U.S. Inventories

Crude oil in New York fell almost $3 a barrel, the biggest decline since April, after a government report showed that U.S. refineries have sufficient supplies to make gasoline for the final weeks of summer.

Oil and gasoline prices jumped in the minutes after the Energy Department report showed an unexpectedly large decline in gasoline supplies. Prices subsequently tumbled after gasoline touched an all-time high. Oil inventories are almost 10 percent higher than a year ago, dispelling any concern of a fuel shortage in the months ahead.

``Peak summer gasoline demand is over, with only two weeks left in the driving season,'' said Doug Leggate, senior oil analyst at Citigroup Inc. in New York. ``Attention is turning to distillate stocks'' including heating oil, which have increased for 13 consecutive weeks.

Crude oil for September delivery fell $2.78, or 4.2 percent, to $63.30 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures surged to $67.10 a barrel on Aug. 12, the highest since trading began in 1983. Prices are up 35 percent from a year ago.

``During the last three days we got close to $67.10 but couldn't get through,'' said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York. ``Gasoline made new highs after the report, pulling crude higher, but was unable to sustain the rally. Sentiment has shifted.''

Gasoline for September delivery fell 9.86 cents, or 5 percent, to $1.885 a gallon in New York. Prices rose to $2.029 a gallon at 10:34 a.m., the highest since the contract was introduced in 1984. The September heating oil contract fell 7.65 cents, or 4.1 percent, to $1.7875 a gallon.

The Energy Department released the weekly inventory report at 10:30 a.m. in Washington.

Inventory Report

Inventories of gasoline dropped 4.97 million barrels to 198.1 million barrels in the week ended Aug. 12, the seventh straight decline, the report showed. A drop of 1.5 million barrels was expected, according to the median of 12 estimates in a Bloomberg survey.

Demand for gasoline fell 75,000 barrels to an average 9.4 barrels a day, the lowest in a month, according to the report.

``There are signs that gasoline demand is tapering off, which has reduced supply fears,'' Bentz said.

U.S. gasoline demand last month was lower than in July 2004 because of higher retail prices, the American Petroleum Institute said in a report released today. The total amount of gasoline supplied in the U.S., a measure of demand, was 9.28 million barrels a day in July, down 0.8 percent from a year earlier, the industry-funded group's report showed.