Oil prices fell toward $87 a barrel on Wednesday, extending this month's losses to more than 5 percent, after a government report showed a surprisingly big build in US petroleum stockpiles. Oil prices have already been under heavy selling pressure since hitting a record $100 in early January amid intensifying signs the economy of the world's biggest energy consumer is falling into recession.
"The US economy just attracts more bad news and demonstrates its fragility," said Robert Laughlin of MF Global. "For oil, demand will slip and prices should come under renewed pressure in the short term."
US crude fell $1.27 to $87.14 a barrel, adding to losses of nearly 2 percent the previous session. London Brent crude dropped $1.04 to $87.78. A report from the US Energy Information Administration on Wednesday showed commercial crude stockpiles rose 7 million barrels last week against analyst expectations for a 2.6 million barrel build.
Gasoline supplies, meanwhile, climbed 3.6 million barrels to their highest level since February 1994, the EIA said. "These numbers are all bearish," said Tim Evans, analyst at Citigroup Futures Research. "Inventories were up across the board, implied demand looked terrible."
On Tuesday, an influential report showed the vast US services sector contracted to recessionary levels in January, reinforcing fears energy demand will slow down under the weight of high prices and the fallout from a housing slump.
Forecasts for normal or slightly above normal temperatures in the US Northeast for the next six to 10 days also kept a lid on oil prices by damping the outlook for heating oil demand, dealers said. Opec's concerns about slowing global demand prompted the group to keep supply steady at last Friday's meeting and some hawkish members have called for a vote to cut output at its March 5 meeting.