NEW YORK Oil prices briefly dropped below $118 a barrel Wednesday $30 below their record high after a jump in U.S. crude and other fuel supplies fed beliefs that high energy prices are eating into demand.
Light, sweet crude for September delivery finished the session down 59 cents at $118.58 a barrel on the New York Mercantile Exchange. Prices earlier fell as low as $117.11, the lowest since May 2 and slightly more than $30 below their trading high of $147.27, reached July 11.
At the pump, falling crude kept weighing on prices. U.S. filling stations hungry for business ratcheted down the price for a gallon of regular on average by another penny overnight to $3.862, according to auto club AAA, Oil Price Information Service and Wright Express. Prices have now fallen more than 6 percent from all-time highs above $4 a gallon reached July 17.
Oil market traders are paying close attention to see if oil falls below $117, a key resistance level expected to trigger a rash of technical selling by computers programmed to dump oil contracts once prices fall below a certain threshold.
"There's a line in the sand just below $117. If you close below that, it signals traders are giving up on the bull market in oil," said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, N.J. "Subsequent rallies may take us higher, but the highs for the year have probably been put in."
Still, Kloza said a surprise event such as a flare-up of violence in the Middle East or a major hurricane slamming the U.S. Gulf coast, could send prices soaring again. Other analysts say oil remains in a long-term upward trend, noting that futures contracts years out still peg prices above $100 a barrel.
The U.S. Energy Department's Energy Information Administration said crude supplies rose by 1.7 million barrels to 296.9 million for the week ended Aug. 1, slightly more than the 1.2 million-barrel increase expected by analysts surveyed by energy research firm Platts. The EIA said inventories of distillate fuel, which include diesel and heating oil, jumped 2.8 million barrels to 133.3 million barrels, above the 2.3 million barrels expected by analysts.
Meanwhile, EIA data showed gasoline stockpiles fell by 4.4 million barrels to 209.2 million barrels for the week ended Aug. 1, much more than the 1.4 million drop expected by analysts.
The government figures reflect the fuel that refiners have on hand. The big drop in gas stocks surprised some oil market traders, but analysts said it likely signals that gas distributors have taken more deliveries from the refiners as the summer driving season enters its last month not that U.S. motorists are suddenly ramping up their driving amid recent pullbacks in pump prices.
"I think we need to drop another 30 or 40 cents a gallon before we really see any change in driving habits," Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
Lending support to that idea, the EIA said demand for gasoline for the month ended Aug. 1 topped out at about 9.4 million barrels a day, 2.3 percent lower than the same period last year.
Investors again shrugged off tension over Iran's nuclear program. Six nations, including the U.S., agreed Wednesday to seek new U.N. sanctions against Iran after it failed to accept incentives aimed at defusing the dispute over its nuclear program.
The countries agreed that Iran's latest reply to the offer was "very disappointing" and "a stalling tactic" that left them no choice but to pursue sanctions against the oil-producing country, State Department spokesman Gonzalo Gallegos said.
The market also ignored a fire at a Turkish section of the Baku-Tbilisi-Ceyhan pipeline, a major supplier of crude to Western markets. The blaze disrupted the flow oil but did not halt shipments, said Murat Lecompte, a spokesman for pipeline shareholder BP PLC. The pipeline can pump slightly more than 1 million barrels of crude oil per day. The cause of the fire was unclear.
Investors appear to be reacting less to potentially bullish factors like the weather and geopolitical developments and instead was turning its attention more to fundamentals, "in particular the rocky demand outlook in certain countries," said analysts at JBC Energy in Vienna, Austria.In other Nymex trading, heating oil futures fell 4.41 cents $3.2379 a gallon, while gasoline prices fell 0.71 cent to $2.9493 a gallon. Natural gas futures rose 4.7 cents to $8.773 per 1,000 cubic feet.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.