Crude futures fall sharply as US says oil, fuel stocks higher than expected

Source: Agencies  |   2008-6-26  |     ONLINE EDITION

CRUDE oil futures fell sharply yesterday after the Energy Department said the United States' stockpiles of fuel and oil were larger than expected last week, evidence that the soaring price for gasoline has sliced into Americans' demand for fuel. The Federal Reserve's decision to hold interest rates steady had little impact on trading.

Light, sweet crude for August delivery fell US$2.45 to settle at US$134.55 on the New York Mercantile Exchange. In London, August Brent crude futures fell US$2.13 to settle at US$134.33 a barrel on the ICE Futures exchange.

In its weekly inventory report, the department's Energy Information Administration said crude oil stocks rose slightly last week. Analysts surveyed by research firm Platts had expected a 1.7 million barrel decline.

Gasoline supplies fell less than expected. And inventories of distillates, which include diesel fuel and heating oil, rose much more than expected.

Demand for gas, meanwhile, fell 2.1 percent.

"At some point, that's going to bring (gas) prices down," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The Federal Reserve, meanwhile, held a key interest rate steady, ending its string of consecutive rate cuts. The move was expected and as a consequence, oil futures changed little from where they were trading before the announcement.

"There's nothing in the statement that changed traders' minds," Flynn said.

Some economists interpreted Fed comments that accompanied the announcement as meaning there will be no interest rate increases until late in the year.

Interest rates affect the dollar, and the Fed's campaign of rate cuts, which began in September, has sent the greenback into a protracted decline against the euro. Many analysts believe this slide is a big part of the reason oil prices have nearly doubled over the past year.