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Oil prices fell below the $90-a-barrel level Wednesday after the government reported a sharp increase in the nation's supplies of crude and gasoline, in another sign that demand for energy remains weak.
Light, sweet crude for November delivery was down $3.11 to $86.95 a barrel on the New York Mercantile Exchange. Oil had traded down about 75 cents just before the government figures were released. Prices have been under pressure amid anxiety over a global slowdown in demand.
Wednesday's report "feeds into the sense that the consumer is flat on their back," said John Kilduff, energy analyst at MF Global in New York. And with the global economic outlook darkening, "demand for energy is not going be perking up any time soon."
In its weekly inventory report, the Energy Information Administration said the nation's stockpiles of crude oil surprisingly rose by 8.1 million barrels last week. Analysts were expecting crude stocks to have dropped by 1 million barrels, according to a survey of industry experts by energy research firm Platts.
Gasoline supplies also increased by a bigger-than-expected 7.2 million barrels. Estimates had called for a more modest 2-million-barrel rise.
Also missing forecsasts, supplies of distillates - used to make heating oil and diesel fuel - fell unexpectedly by 500,000 barrels. Analysts expected supplies to rise by 1 million barrels.
EIA noted in its report that demand for gas over the last four weeks dropped 5.3% from a year ago, to average nearly 8.8 million barrels per day.
Meanwhile, refineries operated at 80.9% of their operable capacity last week, up from 72.3% the week before.
The price of oil edged above $90 earlier Wednesday after the Federal Reserve lowered its benchmark interest rate to 1.5% from 2%. The surprise emergency move was part of a coordinated effort by central banks worldwide to combat the credit crisis.
Oil prices have been closely following the U.S. euqity markets recently as investors look for signs of economic recovery that could signal renewed demand for oil and gas.
Stocks seesawed in the early going, with the Dow industrials trending in a range of 180 points higher and some 200 points lower, as investors digested the rate cuts.
