Crude Prices Drop as U.S. Supply Increases

Crude futures plummeted Wednesday after the U.S. government reported surprising increases in the nation's supply of oil and distillate fuel (search), which includes heating oil and diesel.

Light, sweet crude for February delivery plunged $1.96 to $43.80 per barrel on the New York Mercantile Exchange (search).

The Department of Energy (search) said Wednesday that the commercially available supply of crude oil rose by 2.1 million barrels last week to 295.9 million barrels, while inventories of distillate fuel grew by 600,000 barrels to 119.9 million barrels.

Many traders had expected to see declines in the commercially available supply of crude oil and distillate fuel. Even after last week's increase, distillate supplies remain 12 percent below year ago levels. There is nearly 8 percent more oil on hand today than a year ago.

Over the past two months, oil traders have become increasingly fixated about how cold the winter will be in the United States and whether there are adequate stocks of heating oil to cope with any sharp spike in demand.

The market's dual watch of weather charts and petroleum stocks comes after a year when oil prices raced to record highs above $55 a barrel on potent fears that supplies in many countries could be disrupted even as global demand remains robust.

Underpinning the rise in worldwide energy consumption is China, which said Tuesday its demand for crude oil picked up in November.