Oil Falls Settles Below $70 as Inventories Rise

Oil fell settled below $70 a barrel early Thursday for the first time since August last year after U.S. government data showed crude and gasoline inventories surged much more than expected, while product demand slid.

Crude oil inventories in the United States rose 5.6 million barrels last week, the government data showed, far exceeding analysts' expectation of a 1.9 million barrel increase.

Gasoline inventories rose 7.0 million barrels, more than double analysts' forecast of a 2.9 million barrel increase.

AP Oil Refinery

Meanwhile, demand for oil products over the past four weeks dropped 8.9 percent from year ago levels.

"It's still a demand story, we're moving lower following the report. We saw some very large builds in gasoline and crude oil for the second week in a row, this confirms the fact that demand is truly weakening in the United States," said Amanda Kurzendoerfer, commodities analyst at Summit Energy in Louisville, Kentucky.

U.S. crude for November delivery fell $4.69 per barrel, or 6.3 percent, to $69.85 on the New York Mercantile Exchange Thursday, after sliding as low as $69.15, the cheapest price since August of last year.

London Brent crude was also lower.

U.S. crude has fallen from record highs above $147 hit in July, and has dropped nearly a third in value in three weeks, the steepest such decline since it began trading in 1983.

Data from the Federal Reserve showed U.S. industrial production posted the biggest monthly decline since 1974.

"Economic weakness is hitting the stock and oil markets, but the oil price fall is also reflecting a lack of demand. It is very difficult to buy oil if you are having a hard time getting credit lined up," said Francisco Blanch, head of commodity research at Merrill Lynch.

Analysts have scaled back global oil demand growth estimates after a slew of gloomy economic data that suggest the credit crisis has begun to undermine economic growth in the United States, the world's top energy consumer.

OPEC

The Organization of the Petroleum Exporting Countries (OPEC) said Thursday it had brought forward to Friday next week an emergency meeting to discuss the impact of global recession on oil markets.

Pressure has been mounting within the 13-member group to reduce supplies. There are expectations it may take action to support prices.

Nigerian Oil Minister Odein Ajumogobia said the emergency OPEC meeting was an opportunity to consider options regarding the world oil price but that no course of action had yet been proposed.

"I regard it as an exploratory meeting to review facts and options. Not even tentative proposals have been discussed at this stage," Ajumogobia told Reuters.

Hurricane Omar, which disrupted shipments from Venezuela this week, strengthened into a major Category 3 storm Thursday as it headed toward Puerto Rico and the northeastern Caribbean, but was on a northeast trajectory away from the U.S. Gulf, the National Hurricane Center said.

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