Inventories Spoil Energy Rally

Updated from 11:08 a.m. EDT

Oil prices fell below $64 a barrel Thursday after natural gas inventories rose more than expected last week.

Light, sweet crude for October delivery gave back 75 cents to settle at a five-month low of $63.15 a barrel on Nymex. Oil prices typically fall in September when refiners are starting maintenance work before the beginning of the winter heating season. Heating oil shed 3 cents to $1.71 a gallon, and wholesale unleaded gasoline fell 1 cent to $1.55 a gallon.

Natural gas plummeted 55 cents to eke out a fresh two-year low of $4.89 per million British thermal units after domestic supplies soared more than expected. In its weekly fuel update this morning, the U.S. Energy Department said inventories climbed by 108 billion cubic feet to 3 trillion cubic feet last week. Analysts polled by Bloomberg had expected an increase of 90 billion cubic feet.

"We are now sitting on over 3 trillion cubic feet of inventories, the highest level for this time of the year in almost 15 years, and the most comfortable stock going into a winter season in recent history," said Rakesh Shankar, an energy analyst at Moody's Economy.com.

With little hurricane activity and strong inventory levels ahead of the winter -- supplies now stand 12% above last year at this time -- prices, which are currently at two-year lows, have nowhere else to go but down.

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