NEW YORK (AP) — Oil dropped below $110 per barrel on Wednesday after a government report showed that supplies of petroleum products are growing as demand weakens in the U.S.
Industry reports on the job market and the service sector also raised concerns about the health of the U.S. economy.
Benchmark crude for June delivery lost $1.81 to settle at $109.24 per barrel on the New York Mercantile Exchange. In London, Brent gave up $1.26 to settle at $121.19 per barrel on the ICE Futures exchange.
Prices fell shortly after the Energy Information Administration said that oil supplies increased by 3.4 million barrels last week — twice as much as energy analysts expected. The government also reported that gasoline demand averaged 9.1 million barrels per day, down almost 2% from a year ago.
Crude has been climbing over the past few months as unrest in North Africa and the Middle East raised concerns about oil supplies and a weaker U.S. dollar made crude cheaper for investors holding foreign money.
Still, economists warned that higher energy prices were taking a toll on the economy, and recent government and industry surveys suggest that American drivers are buying less fuel.
In its weekly report, MasterCard SpendingPulse said the four-week average of gasoline purchases in the U.S. dropped for the sixth consecutive week, compared with a year ago. EIA said the four-week average of wholesale gasoline demand also dropped for the sixth straight week.
So far the drop in consumption hasn't kept pump prices from rising. Gasoline has increased for 43 days straight, hitting a national average of $3.982 per gallon on Wednesday, according to AAA, Wright Express and Oil Price Information Service. Pump prices have risen 91 cents per gallon since the beginning of the year. A gallon of regular now costs more than $4 in 13 states and Washington, D.C.
Lackluster economic news also helped push oil prices down on Wednesday. The Institute for Supply Management said its service sector index rose at the slowest pace in 8 months in April, as many companies expressed concerns about higher food and gas prices. Private payroll processor ADP also raised worries about the health of the jobs market when it reported that 179,000 new private sector jobs were added in April, far fewer than economists expected.
In other Nymex trading for June contracts, heating oil lost 4.78 cents to settle at $3.143 per gallon and gasoline futures fell less than a penny to settle at $3.3225 per gallon. Natural gas gave up 9.4 cents to settle at $4.644 per 1,000 cubic feet.