LONDON – Oil prices fell sharply Wednesday after the government reported that U.S. inventories of crude rose 3.4 million barrels last week, surprising many traders and analysts who had expected to see supplies shrink due to lingering output problems in the wake of Hurricane Ivan.
Oil is priced 75 percent higher than a year ago, but when adjusted for inflation, still remains around $30 below the level reached in 1981.
In the Gulf of Mexico, the damage from Hurricane Ivan (search) continues to cause supply disruptions. On Tuesday, the federal Minerals Management Service (search) reported that 11.8 million barrels of oil have been lost since Sept. 13 and that daily production in the region is still down by 29 percent.
However, government and industry analysts have cautioned that large amounts of oil would eventually arrive in the United States, as ships that were delayed by a string of hurricanes began making their deliveries.
The government data appeared to prove them correct. Crude oil imports averaged 9.9 million barrels per day last week, a rise of 1.5 million barrels a day from the prior week, the Energy Department (search) said.
Also, as refiners struggled to regroup following the hurricane, the amount of oil they used last week declined by 700,000 barrels per day, on average, the government said. This caused a drop, though, in the amount of gasoline that was produced.
The nation's supply of crude is still 4 percent below last year's level at 272.9 million barrels. With fears of international supply disruptions at a time when the world's excess production capacity is minimal, many analysts expect oil prices to remain high — above $40 a barrel — into 2005.
Crude futures hit $50 a barrel for the first time in after-hours trading Monday, spurred higher by reports that rebels in Nigeria continue to battle for control of the vast southern oil fields in the world's seventh-largest exporter.
Prices inched higher all summer long as Iraqi oil pipelines were frequently attacked and Russian oil giant Yukos warned that its output might suffer due to a multibillion dollar back-tax bill.