Crude Prices Fall Again

Updated from 1:02 p.m. EDT

Oil prices extended their decline to a fourth session Thursday following a surprise increase in Chinese interest rates and data showing weaker gasoline demand and higher refinery production.

Light, sweet crude closed down 96 cents at a two-week low of $70.97 a barrel on Nymex. Unleaded gasoline, which often moves in tandem with oil, shed 6 cents to settle at $2.07 a gallon. June crude has lost much of its gains from last week and is down 5% since closing at $75.15 on Friday.

For the first time since October 2004, China's central bank increased its benchmark interest rate Thursday, raising it to 5.85%. Chinese energy demand has propped up energy prices and slashed world supplies. During the first quarter, Chinese crude imports were 272 million barrels, up 25% from last year, Bloomberg reported.

Last week, U.S. refiners operated at their highest rate since January as more shuttered units came back online. Refineries have been closed for longer than usual this year to phase out an additive linked to water pollution and to accommodate the seasonal switch to cleaner, summer blends of gasoline.

With more refineries running, more gasoline was produced. Although inventories fell 1.9 million barrels last week, it was less than the 3 million-barrel drop analysts polled by Bloomberg had predicted. Gasoline supplies are nearly 6% below last year.

Rising crude prices and new fuel requirements have boosted gasoline prices 22% this year. Gasoline prices usually jump in the spring as refiners start making summer blends, but the increase has been higher this year. Refiners are struggling to drain their tanks of gasoline laced with methyl tertiary butyl ether for gasoline reformulated with ethanol by May 5, when their protection from MTBE lawsuits ends.

High gasoline prices have shaved demand. Over the past four weeks, demand has inched up just 0.3% over the same period a year ago. At this time last year, demand was up 1.5% over 2004.