LONDON – Oil prices fell nearly $2 to just over $43 on Wednesday, dragged down by heavy losses on U.S. gasoline futures prices as summer driving demand failed to meet expectations.
U.S. light crude ended down $1.66 at $43.55 a barrel on the New York Mercantile Exchange (search) after falling to its lowest level of $43.22 in 11 sessions. London Brent traded down $1.62 at $40.70 a barrel. Prices are down more than $6 from record highs hit last week though still nearly $6 higher than at the end of June.
Prices fell after the U.S. Energy Information Administration (search) said gasoline stocks were unchanged at 205.7 million barrels last week near the upper end of their five-year average, the EIA said.
Analysts had expected gasoline supplies to decline due to summer vacation gasoline consumption, but gasoline demand over the past four weeks was just 0.7 percent higher than last year, the EIA said
"Gasoline appears to be the weakest link in the complex right now. That's typical as we're just 10 days until the end of the summer driving season," said Marshall Steeves, market analyst at Refco Group.
The weak performance on gasoline outweighed a 1.7 million barrels fall in crude stocks to 291.3 million, pulling inventories to the lowest level in five months.
Crude stocks fell as refineries worked at 96 percent of capacity, eating up feedstocks at a rate of 16.05 million barrels per day (bpd).
"We're seeing runs at unusually strong pace for this time of year, chewing into crude supplies," said Jim Ritterbusch, president of Ritterbusch and Associates.
Diesel fuel demand this summer has been unusually high, due in part to surging freight activity and manufacturing. Distillate fuel demand, including diesel, is running more than 7 percent above last year.
Prices fell this week after Iraq restored full crude exports of two million barrels a day from its southern Basra fields and restarted deliveries at 450,000 bpd, half capacity, from its northern Kirkuk fields for the first time since May.
Worries about an output cut from Russia's leading producer Yukos (search), battling to avoid bankruptcy, have also eased after Russian President Vladimir Putin gave President Bush an assurance on Russian supplies.
Russia has allocated Yukos its usual crude export levels through major ports in September including 520,000 tonnes through the Baltic port of Primorsk, where total volumes will hit a new record.
So far there is not much evidence that fuel costs are undercutting economic growth, either in big industrialized powers or in emerging economies like China and India.
European Central Bank (search) President Jean-Claude Trichet said on Wednesday that the ECB's outlook for euro zone growth remained unchanged.
"All things considered, petrol prices and all the rest, I don't think there is a need to revise downwards our forecasts for growth for the euro zone," Trichet added.
He said the situation was not comparable to the energy crises of the 1970s and 1980s, because oil price increases were not on the same scale and economies now were better protected against fuel costs.
The average Brent price, the benchmark for Europe, has risen 22 percent so far this year to $34.70 a barrel from $28.48 in 2003. Brent is up 260 percent from an average of $13.34 in 1998, when prices crashed, but that compares to a three-fold price jump over a few months in the winter of 1973-1974, during the Arab oil embargo.