Crude Oil Settles Sharply Lower

Updated from 12:01 p.m. EDT

Oil futures had a volatile session Thursday, initially falling on overnight strength in the U.S. dollar and then rising following bullish inventory figures before again turning lower.

West Texas crude for July delivery settled down $4.41 at $126.62 a barrel at the New York Mercantile Exchange. Brent crude lost $4.04 at $126.89 a barrel, and reformulated gasoline eased 4 cents to $3.40 a gallon.

After losing roughly $2 a barrel near the open of the trading session, crude futures bounced $3 in a matter of seconds upon the release of the latest oil inventory report by the Energy Department. However, the gains were short-lived, and crude began to pull back.

The report from the Energy Information Administration showed that domestic oil stocks, excluding those held in the strategic petroleum reserve, fell by 8.8 million barrels during the week ended May 23. According to a Bloomberg census, analysts were expecting that oil inventories would remain unchanged during the week.

After last week's fall in oil inventories, total domestic stockpiles are now in the lower half of their average range for this time of year, according to the EIA.

The agency laid the blame for the decline on delays in crude oil tanker off-loadings at Gulf of Mexico terminals. There are strict guidelines dictating which tanker shipments can be included in the current report and which must wait for the following week. Because such bureaucratic wrangling often interferes with interpretations of the data, many analysts say that year-on-year inventory comparisons are more insightful than are week-on-week comparisons.