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Oil tumbles as U.S. supplies rise and demand falls

The dollar's gains also help weaken the market for raw materials by making commodities more expensive for foreign investors.

May 12, 2011|By Tom Petruno, Los Angeles Times

Energy prices led a renewed plunge in commodities Wednesday after government data showed accumulating stockpiles of crude oil and gasoline — and weaker demand.

A fresh surge in the dollar also helped depress the market for raw materials by raising the cost of commodities for foreign buyers.

Crude futures for delivery next month tumbled $5.67, or 5.4%, to $98.21 a barrel in New York trading, their second decline below the $100 mark since late last week.

Gasoline futures plunged 26 cents, or 7.6%, to $3.12 a gallon.

Trading in oil and gasoline futures was briefly halted when the slide in gas prices reached 25 cents, triggering a so-called circuit breaker.

The federal government reported that U.S. oil inventories rose 3.8 million barrels last week to 370.3 million, a two-year high. Even more surprising, gasoline inventories rose 1.3 million barrels to 205.8 million, the first increase since February.

While supplies of gasoline increased, U.S. consumption of the fuel continued to slide. With pump prices averaging nearly $4 a gallon nationwide and $4.25 in California, the weaker demand is "evidence that high prices are having an impact," said Andrew Lebow, an analyst at MF Global Inc. in New York.

The drop Wednesday in gasoline futures prices came despite worries that flooding from the Mississippi River could damage key refineries in the South. Prices had surged Monday and Tuesday on those concerns, and "that's not over yet," Lebow said.

Meanwhile, the dollar jumped against the euro as fears again mounted that Greece will end up defaulting on its debt, potentially triggering a new banking crisis in Europe. The euro slid to a six-week low of $1.420 from $1.441 on Tuesday.

The dollar's gains pounded gold and silver, which had benefited from the greenback's slide over the last eight months as investors sought an alternative to paper currencies. Silver futures plummeted $2.97, or 7.7%, to $35.51 an ounce in New York. Gold fell $15.50, or 1%, to $1,501.10 an ounce.

The Thomson Reuters/Jefferies CRB index of 19 major commodities lost 3%. Last week the index plummeted 9% as some investors rushed to take profits that had mushroomed since August. The index rebounded Monday and Tuesday as selling abated, but Wednesday's slump — taking the gauge almost back to Friday's nearly three-month low — may unnerve more investors who sat through last week's dive.

Silver, which hit a 31-year high of $48.58 an ounce April 29, closed Wednesday just above its two-month low of $35.28 reached Friday. "We had a lot of people in that trade, and there still are some of them trying to get out," said Frank Cholly, a commodities strategist at Lind-Waldock in Chicago.

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