Skip to main content

Oil Extends Its Slide

Crude ends at a five-week low of $62.55 a barrel.

Updated from 11:32 a.m. EST

Oil prices fell to a five-week low Wednesday as traders focused on warm weather and robust gasoline inventories and discounted a modest drawdown in crude.

Crude for March delivery closed down 54 cents to $62.55 a barrel. The decline came despite an Energy Department report that showed oil inventories fell by 300,000 barrels to 320.7 million barrels last week. Estimates had ranged from a build of 300,000 barrels to 1 million, according to surveys by





Many refineries are closed for delayed seasonal maintenance and are operating at relatively low capacity. After a pair of hurricanes shut down most of the Gulf of Mexico's petroleum infrastructure last fall, refineries put off their maintenance schedules to meet demand. Inventories are 10.7% above the same period last year,

Weekly rises and falls in supplies don't always signify a long-term trend because the numbers can vary dramatically depending on, for example, shipment schedules and accidents. Analysts often have problems predicting weekly supplies because shippers are often loath to share their data.

The Iranian nuclear standoff and supply disruptions in Nigeria, the fifth-largest supplier of U.S. crude, have taken a back seat in energy markets over the past two days. Last weekend, the U.N.'s nuclear watchdog referred Iran to the Security Council for possible economic sanctions for its refusal to back down from restarting nuclear development activities.

"As traders begin to digest that the potential for any real disruption to oil markets regardless of whatever direction the Iranian crisis takes is really small, prices will start to trend lower," said Rakesh Shankar, an energy analyst with in West Chester, Pa.

While oil prices have fallen over 5% this week, the drop is still small compared to the 50% increase in prices over the past two years. Growing economies in Asia and the U.S. have trimmed inventories and pushed up prices. Small disruptions, like recent rebel attacks in Nigeria that slashed that country's output by 10%, have only exacerbated the inventory crunch.

"The lack of a supply cushion is behind today's high prices," said Lanny Pendill, an energy analyst at Edward Jones.

Unless new supplies are found or demand suddenly shrinks, the world's thirst for oil is expected to continue unabated. In the second quarter, domestic demand is projected to rise by 240,000 barrels per day, according to the Energy Department's short-term outlook.

Crude prices will likely remain high this year, but will soften next year as demand shrinks and new oil fields come online, the government believes. The Energy Department forecasts that crude will average $65 a barrel this year, and $61 a barrel next year. Still, those estimates could quickly be revised depending on the "wildcard" of politics, said Pendill.

Predictions of a blizzard this weekend were having little effect on heating fuels, with natural gas falling 12 cents to a six-month low of $7.73 per million British thermal units. On Tuesday, natural gas hit a six-month low of $7.85 per million British thermal units, and heating oil fell to a five-week low of $1.69 a gallon. Sufficient supplies of both natural gas and heating oil have been discounting some of the effects of the upcoming cold weather.

Heating oil lost over 2 cents to a one-month low of $1.66 a gallon despite a 300,000-barrel increase in distillates, which include heating oil. Fuels used for heating have lost ground this year due to unseasonably warm weather. Temperatures were 25% warmer than normal during January, the Energy Department said in its short-term outlook.

Gasoline prices fell 4 cents to $1.54 a gallon after supplies rose 4.3 million barrels last week to 223.3 million barrels. A 1% rise in gasoline imports, low seasonal demand and robust supplies from the previous week offset a slight decline in production and 1% increase in demand.

As originally published, this story contained an error. Please see

Corrections and Clarifications.