Updated from 12:31 p.m. EDT
Oil prices tumbled more than 4% Wednesday as the seventh straight weekly drop in U.S. gasoline inventories failed to elicit the customary rapture among energy bulls.
A higher-than-expected producer price index also pressured oil prices on concern that growing inflation will curb demand.
The September crude contract closed down $2.83 to $63.25 a barrel on Nymex. Gasoline futures plunged 9 cents to $1.89 a gallon.
In the week ended Aug. 12, the Energy Department said, U.S. gasoline inventories dropped by 5 million barrels, significantly more than analysts had expected. Crude inventories added 300,000 barrels, which was a smaller build than predicted. Distillates inventories rose by 1.2 million barrels.
Gasoline stocks are currently at the bottom end of the seasonal average, the report said.
"The energy sector is down across the board, led by crude," said Randy Diamond, trader at Miller Tabak & Co. "What started the reversal to the lows of the day was profit-taking on the inventory data. Exaggerating the move lower, 20 minutes after the inventory data, was news that Venezuela announced that they plan to add 3 new refiners to be in production by 2010."
According to Diamond,
comments Tuesday that higher gasoline prices were actually hurting the economy extended the sell-off Wednesday.
Refineries operated at 93.5% capacity, reflecting a host of refinery shutdowns that plagued the industry in the last few weeks.
In a separate, monthly report, the Organization of Petroleum Exporting Countries said it expects daily oil demand to grow by 1.6 million barrels, or 1.9%, to 85.2 million barrels in 2006.
OPEC expressed a "slightly more optimistic view of the world economy for the coming year," though it slightly lowered its growth estimates for two of the biggest oil consumers, the U.S. and China.
OPEC's production estimate for 2006 was revised upward by 170,000 barrels a day to average 29.2 million barrels a day, according to the report.
On Tuesday, oil prices dropped after government data showed consumer prices rose by a higher-than-expected 0.5% in July, reflecting high energy prices.
Jeff Mokychic, head analyst at Bridgeton Global Investors Services, believes that oil prices are still not high enough to meaningfully curb its use. "At least for the near term, the price increases we've seen won't slow demand," he says. "Demand has been growing steadily for the past few years and International demand is there to offset a slowdown in the U.S., if any."
According to the Energy Department report, gasoline demand in 1.5% higher than it was a year ago. Distillates demand, which includes heating oil and diesel, increased 4% from last year.
said Wednesday it has signed an agreement with
to participate in drilling four deepwater Gulf of Mexico prospects. Anadarko will hold a 20% to 25% in the project.
, the independent exploration and production company, announced changes at the helm. Stephen Furbacher was named president and chief operating officer after the resignation Executive Vice President Alec G. Dreyer earlier this week. Furbacher was previously executive vice president of the company's midstream natural gas business.
The Amex Oil Index dropped 2.6%. Among the major oil producers shares were mixed.
dropped 1.2%, Chevron fell 0.8%,
, fell 2.6% and