Oil fell more than 3 percent on Wednesday, its biggest drop in six weeks, as a rise in US gasoline stocks exacerbated a sell-off triggered by slower Chinese output growth and a downbeat economic outlook from the Federal Reserve. Gasoline prices led the decline, dropping for the fifth time in six days.
-- IEA lifts demand forecast, but emphasises economic risk
In a sign of unusually weak summer demand, gasoline's premium to crude narrowed to less than $6 a barrel for the first time since December after weekly inventory data showed stocks rising even as refiners slashed output. The rise in US refined product stocks overshadowed the bigger-than -forecast 3 million barrel draw in crude stocks, as well as a slight upgrade in the outlook for global oil demand growth from the International Energy Agency.
US crude for September delivery fell $2.23, or 2.78 percent, to settle at $78.02 a barrel. Total trading volume came to more than 700,000 lots after the settlement, well above the average of 555,000 lots over the past 30 days. Front-month ICE Brent crude fell $1.96 to settle at $77.64. September RBOB gasoline fell 8.77 cents, or 4.21 percent, to settle at $1.9976 a gallon, while September heating oil fell 2.36 percent.
Prices traded in tandem with slumping US equity markets and a surging dollar through most of the day. Data showing slower growth in Chinese investment and factory output fed early losses that accelerated as traders grew more anxious about the risk of a double-dip recession.
The US S&P 500 stock index fell 2.6 percent and the US dollar index surged by nearly 1.8 percent as the Chinese data plus Tuesday's Fed comments about a sluggish recovery fuelled worries about the economy and drove investors to sell riskier assets. Oil prices took an additional hit from weekly government oil stock data showing refined products inventories rose more than expected in the week to August 6 despite a sharp 3.1 percentage point drop in refinery utilisation.
Gasoline inventories rose 400,000 barrels, more than expected during summer, when stocks normally decline, leaving the premium to year-ago levels at 11.5 million barrels. The EIA also reported a 3.5 million barrel rise in distillate stocks. Most of the nation-wide decline in crude oil stocks was concentrated in the Midwest PADD 2 region. This includes refiners that have been forced to curtail runs due to a more than two-week closure of a small but key Enbridge pipeline.
Stocks fell by 2.4 million barrels from the previous week's record high, although refinery crude runs dipped by less than one percent, according to the data. Oil demand readings from China, the world's No 2 consumer, showed growth slowing to a modest 2.2 percent in July versus a year ago, and down 6 percent from June. While the IEA monthly report slightly increased forecasts for global crude demand for 2010 and 2011, it warned any rise in fuel consumption could be wiped out if the global economy proved weaker than expected.
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