Crude Below $77 After Bearish Build

Crude stockpiles increased by 400,000 barrels for the week ending July 16, according to a weekly report issued by the Energy Information Administration.
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(Crude oil, energy markets story updated for Wednesday close, Exxon Mobil oil spill response company)



) -- Oil futures delved into negative territory Wednesday after the government said crude oil inventories rose unexpectedly last week, and the markets took a turn for the worse in afternoon trading after cautious comments from Federal Reserve chairman Ben Bernanke in testimony on Capitol Hill.

Crude stockpiles increased by 400,000 barrels for the week ending July 16, according to a weekly report issued by the Energy Information Administration. But the modest buildup defied analysts forecasts, provided by Platts, calling for a drawdown of 1.6 million barrels. It also countered estimates from the American Petroleum Institute released late Tuesday showing stockpiles declined by 241,000 barrels.

That, in turn, sent the September delivery contract for crude on the Nymex down into negative territory. The contract settled on Wednesday afternoon at $76.56 a barrel, $1.02 below the previous settle price.

The markets extended losses on Wednesday afternoon after Federal Reserve chief Ben Bernanke voiced more caution about the pace of economic recovery, and cited the ongoing issues of joblessness in the U.S. and European nations at risk of debt default.

In the energy-specific context, reported fuel buildups in the EIA report also outpaced expectations. Gasoline inventories climbed up by 1.1 million barrels; analysts had thought those supplies would rise by 1 million barrels. Distillate fuels, too, added 3.9 million barrels, while forecasts had called for a more modest 1.6 million barrel buildup.

September heating oil on the Nymex declined 5 cents to a settle price of $1.98 a gallon on Wednesday afternoon, while the September gasoline contract settled at $2.06 a gallon, a penny below the previous settle.

Stocks had started Wednesday strong thanks to some good corporate earnings results, but turned weaker as trading went on. Most of the major oil stocks were trading in the red, with the NYSE Arca Oil index losing 1.4%% and the Philadelphia Oil Service Sector index retreating 2.8% at the close.

Major integrated firms on the

Dow Jones Industrial Average

were also losing ground, as shares of

Exxon Mobil

(XOM) - Get Report



(CVX) - Get Report

fell by a little more than 1%.

Late on Wednesday, four integrated oil giants -- Exxon, Chevron,


(COP) - Get Report


Royal Dutch Shell


announced a $1 billion joint venture to create a Gulf of Mexico oil spill rapid response force, to be set up over the next 18 months.

While the oil majors were fighting for the future of deepwater drilling in the Gulf of Mexico, BP was selling off assets for survival. Late Tuesday,


(BP) - Get Report

said it inked deals to sell off several assets to


(APA) - Get Report

for some $7 billion. Proceeds from the sale will be used to help pay costs related to its oil leak in the Gulf.

BP was excluded from the group of big oil companies creating the joint venture rapid oil spill response company, but it bucked the trend of negative performance on Wednesday, with the asset sale helping to push its shares up close to 2.6%, to $36.13.

On Thursday, the EIA will also release weekly storage level estimates for natural gas. A survey from Platts showed analysts expect natural gas supplies to rise 49 to 53 billion cubic feet. The August natural gas contract Thursday was dipping 2 cents to $4.57 per million British thermal units.

--Written by Sung Moss in New York