Oil Declines After Supplies Rise for First Time in Six Weeks

By Mark Shenk

June 25 (Bloomberg) -- Crude oil fell more than $4 a barrel after a U.S. government report showed that inventories rose for the first time in six weeks.

Inventories gained 803,000 barrels to 301.8 million last week, the Energy Department said. A 1.1 million-barrel drop was forecast by analysts in a Bloomberg News survey. Fuel demand averaged 20.2 million barrels a day in the past four weeks, down 2.3 percent from a year earlier, the report showed.

``There's no question that high prices are having an impact on driving patterns and gasoline demand,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``We had a nice crude-oil build and the market is responding as it should.''

Crude oil for August delivery declined $4.17, or 3 percent, to $132.83 a barrel at 11:21 a.m. on the New York Mercantile Exchange. Prices, which reached a record $139.89 on June 16, have almost doubled from a year ago.

Gasoline for July delivery fell 10.52 cents, or 3 percent, to $3.3583 a gallon in New York. Futures reached a record $3.5762 a barrel on June 16.

Pump prices are closely tracking futures. Regular gasoline, averaged nationwide, fell 0.2 cent from to $4.067 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.08 a gallon on June 16.

Gasoline Consumption

Gasoline demand has averaged 9.28 million barrels a day over the past four weeks, down by 2.1 percent from the same period last year, the department said. Demand for distillate fuel, a category that includes heating oil and diesel, averaged 4.06 million barrels a day, down by 1.1 percent from a year earlier.

``More attention is now being paid to the demand numbers, and they are having an impact on prices'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Prices shrugged off weakening demand but it has probably gotten to a point where it can be ignored no longer.''

The Energy Department released its weekly report on inventories at 10:35 a.m. in Washington.

The United Arab Emirates, OPEC's third-biggest oil producer, is ready to boost supplies to the market if needed, Oil Minister Mohamed al-Hamli said today. The U.A.E. pumped at full capacity in May, producing 2.65 million barrels of oil a day, according to data compiled by Bloomberg News. The emirates have spare capacity, al-Hamli said.

``As a member of OPEC, we're willing to supply more if the market needs more oil,'' al-Hamli said while attending the Asian Oil and Gas Show in Seoul today. ``We believe the market is adequately supplied at this moment.''

Higher Output

Saudi Arabia, the world's top oil producer and the most influential member of the Organization of Petroleum Exporting Countries, said on June 22 it would increase daily crude-oil output by 200,000 barrels to 9.7 million barrels next month.

Brent crude oil for August settlement fell $3.75, or 2.8 percent, to $132.71 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $139.32 on June 16.

U.S. gasoline purchases fell for a ninth straight week as record prices crimped demand, a MasterCard Inc. report showed yesterday. Consumers purchased an average 9.45 million barrels of gasoline a day in the week ended June 20, down from 9.71 million a year earlier, MasterCard, the second-biggest credit-card company, said in its weekly SpendingPulse report.

Oil prices will fall to $70 a barrel by 2015 as new production begins in countries such as Azerbaijan, Canada, Brazil and Kazakhstan, the Energy Department said its International Energy Outlook 2008 today. Oil will then rise to $113 a barrel by 2030, as the market remains ``relatively tight.''

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.