Feb 3, 2005 3 min read

By Brad Foss AP Business Writer

Crude oil futures fell below $47 a barrel Wednesday as the U.S. government’s latest petroleum report showed an unexpected rise in gasoline inventories and a surprising decline in the nation’s oil supply.

While the drop in crude supplies had placed some upward pressure on prices, traders said momentum was reversed by forecasts calling for warmer weather.

The benchmark crude oil contract for March delivery fell 43 cents to settle at $46.69 per barrel on the New York Mercantile Exchange. Heating oil futures declined by 1.99 cent to $1.294 per gallon and gasoline futures dipped 2.1 cents to $1.2935.

Brent crude fell 81 cents to settle at $44.01 a barrel on the International Petroleum Exchange.

Carl Larry, an analyst at Barclays Capital in New York, described the latest U.S. Energy Department supply report as “neutral.” He said it showed “oil demand is still strong and that is something we’re going to have to contend with as we go forward.”

The U.S. Department of Energy reported Wednesday that total petroleum demand in the United States has averaged 20.7 million barrels over the past four weeks, or 1.5 percent more than a year ago.

While down from their late October highs above $55 a barrel, oil futures are about 34 percent higher than a year ago.

Even though concerns about heating oil supplies have diminished since earlier this winter, the market is still tense due to the war in Iraq, soaring Chinese demand and OPEC’s apparent commitment to keeping prices high.

“I think the global economy is more elastic than first anticipated as far as high energy prices go and that relieves some of the pressure” on OPEC to help lower prices, said Prudential Financial energy broker Aaron Kildow.

The Organization of Petroleum Exporting Countries said Sunday it wouldn’t cut production but gave its president the power to slash output on a moment’s notice. The 11-nation group added that oil prices would remain high through the northern hemisphere spring.

In its weekly report, the Energy Department said the nation’s inventory of crude oil fell last week by 300,000 barrels to 295.3 million barrels, or 9 percent above year ago levels. Traders had been expecting crude supplies to grow by about 1 million barrels.

Gasoline inventories grew last week by 1.6 million barrels to 216.3 million barrels, or 4 percent above year ago levels.

The U.S. supply of distillate fuel, which includes heating oil and diesel, shrank as expected, declining by 2.9 million barrels to 118.6 million barrels, or 5 percent below year ago levels.

Oil futures have fallen roughly 6 percent since settling above $49 last Tuesday, when traders were concerned about the possibility of an OPEC production cut and labor strife in oil-rich Nigeria.

A number of factors have contributed to the easing of oil prices since then, including expectations of milder weather in the United States, a major consumer of heating oil in the winter; an election in Iraq that world leaders hailed as a success; and OPEC’s weekend decision to refrain from a cut in production.

Traders reacted with relief to the election in oil-producing Iraq, which drew large numbers of voters despite a campaign of violence by insurgents who are fighting the U.S.-led coalition.

“It certainly was supporting the high price last week,” Daniel Hynes, an energy analyst at ANZ Bank in Melbourne, Australia, said of prior uncertainty over the vote. “We seem to have come through that relatively unscathed.”

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Associated Press Writers Christopher Torchia in Singapore and George Jahn in Vienna, Austria, contributed to this report.

AP-ES-02-02-05 1526EST