Oil prices tumble for 3rd straight day

Crude oil prices fell for the third straight day on Wednesday, briefly dipping below $72 a barrel after a surprising increase in U.S. gasoline supplies.

Analysts said selling also was spurred by the rising belief in the market that the conflict in Israel and Lebanon would not spread and thus threaten Middle East oil supplies.

Oil futures have plunged more than 5 percent since settling at a record above $77 a barrel on Friday.

�Markets initially priced in an expectation that this would become a broader regional conflict and interrupt Iranian supplies,� said Jason Schenker, an economist at Wachovia Corp. Iran, a financial backer of Hezbollah, is OPEC's No. 2 supplier.

Schenker said markets were also responding to Energy Department data that showed U.S. gasoline inventories above year-ago levels for the first time since late March. �We've got some lush supplies,� he said.

Light sweet crude for August delivery tumbled as low as $71.65 a barrel on the New York Mercantile Exchange, before settling at $72.66, a decline of 88 cents. Gasoline futures declined by 3.72 cents to settle at $2.2298 a gallon, while heating oil futures finished 1.83 cent lower at $1.9651 a gallon.

Fears in the market that the crisis could escalate and possibly draw Iran into the conflict lifted oil prices to an intraday record of $78.40 a barrel on July 14 before settling at a record $77.03.

September Brent crude futures on London's ICE Futures exchange declined 46 cents to settle at $73.90 a barrel.

In its weekly inventory report, the Energy Department said gasoline inventories grew by 1.5 million barrels last week to 214.2 million barrels, or close to 1 percent above year ago levels.

The increase in supplies came as refineries cranked up their production, pumping out gasoline, diesel and other fuels at 93 percent of their total capacity to meet growing demand. Over the past four weeks, gasoline demand in the U.S. averaged almost 9.6 million barrels per day, or 1.9 percent greater than last year.

But oil prices began to fall even before the U.S. data was released.