Oil Below $58 on Soothing Inventory Data

Oil prices fell by almost $1 a barrel Wednesday after the U.S. government released data that showed domestic supplies of oil, gasoline and distillate fuel rose last week.

Light sweet crude for August delivery declined by 94 cents to settle at $57.26 a barrel on the New York Mercantile Exchange (search). Crude futures have declined by more than $3 a barrel in the past two days, retreating sharply from the $60 a barrel level Tuesday in trading that brokers attributed to profit-taking.

Gasoline futures fell by 4.03 cents to $1.5845 per gallon, while heating oil futures declined by 1.88 cent to $1.6016 per gallon.

In London, Brent crude futures for August delivery slipped $1 to settle at $56.20 a barrel on the International Petroleum Exchange (search).

In its weekly petroleum supply report, the Energy Department (search) said inventories of crude oil increased by 1.1 million barrels to 328.5 million barrels, or 8 percent above year ago levels.

Refinery utilization also increased to 96.3 percent of capacity, up from 94.8 percent the week before, and that appeared to give a lift to the supply of transportation fuels. Gasoline inventories grew by 300,000 barrels to 216.2 million barrels, or 4 percent above year ago levels. The nation's supply of distillate fuel, which includes diesel and jet fuel, swelled by 1.7 million barrels to 113.2 million barrels, or less than 1 percent above year ago levels.

"With the price certainly surging like it did, there was plenty of reason to expect the price to come off as traders took profit. Still, the sentiment seems to be quite bullish," said ANZ Bank resource analyst Daniel Hynes from Melbourne, Australia.

Prices are still well above year-ago levels, but would still have to top $90 to reach the inflation-adjusted high set in 1980.

The Organization of Petroleum Exporting Countries (search), which supplies around 35 percent of the world's daily diet of 84 million barrels, has sought to quell crude's rise by raising production quotas, but the market has largely ignored moves by the cartel.

Some governments have warned that high oil prices may dampen GDPgrowth figures.

"The realization seemed to dawn collectively that even if OPECwas not able to restrain the rally that weaker oil demand and possibly economic recession would take their harsh toll sooner or later at $60 levels," said Energyintel analyst Tom Wallin in a research note.

But Nikolaus Keis, an economist with HVB Group, said soaring oil prices seem to have "little if any retarding effects on global growth — at least on global growth expectations."

He said that unlike in previous spikes, consumers aren't likely to be as severely affected, and it would require a far higher oil price to force them to change their behavior decisively.

In Nigeria on Tuesday, hundreds of activists protested at a rally organized by local authorities in the country's oil-rich south, demanding that oil companies halt operations unless the southern region gets a greater share of oil revenues.

Africa's largest producer has been wracked by unrest and the kidnapping of oil workers earlier this month helped push crude to new highs.

"While spare capacity remains tight, geopolitical and terrorist threats seem to be easing too. Nevertheless, oil markets have now established a new upper limit at $60, and they will probably test that limit again before long," Wallin added.