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Oil drops to just over $63
Traders shake off drop in gasoline inventory, seeing more production in the weeks ahead.
August 17, 2005: 3:59 PM EDT
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NEW YORK (CNN/Money) - It may be short-lived, but consumers got some promising news Wednesday as oil prices dropped nearly $3 a barrel Wednesday afternoon.

After a slight morning surge, U.S. crude oil futures fell $2.81 to $63.27 by 3:40 p.m. EST.

Oil prices had ended Tuesday's trading at $66.08.

Gasoline prices followed, falling 6.26 cents to $1.921 after touching $2.029 earlier in the day. The dip in prices followed a weekly government energy supply report that said U.S. gasoline inventories fell for the week ending August 12. The report also said the supply of crude oil and distillates, used for heating and jet fuel, were higher than Wall Street analysts had predicted.

Some experts blamed the drop in the price of crude and gasoline on investors betting on more positive inventory figures next week.

"I think that the market is looking ahead to better imports and higher refinery utility next week," said Brian Hicks, the co-portfolio manager for U.S. Global Investors Global Resources Fund.

According to the report released Wednesday morning by the Energy Information Administration (EIA), crude oil inventories climbed 300,000 barrels from the previous week. Analysts polled by Briefing.com had predicted the supply of crude to jump by 1.25 million barrels.

As of last week, the government agency predicted that the U.S. had 321.1 million barrels of crude oil in its possession. That number is higher than the average for this time of year, the report said.

A key part of the report, however, was the drop in motor gasoline inventories, which fell by 5 million barrels last week. That is considered low for this time of year. Most experts had predicted that gasoline stocks would only fall 1.5 million barrels.

The dip, said Hicks, was probably due to a loss in efficiency at gasoline refineries, which was down 1.5 percent last week. He predicted that U.S. gasoline inventories should improve next week.

"If we get refineries back up to speed, you could see better production in gasoline and with gas prices being as high as they have been, we might see less of a demand," he said.

The EIA report also hinted that U.S. demand may have slowed slightly as the number of imported barrels of crude oil into the U.S. per day fell by 752,000 compared to the week ending August 5. That same week the U.S. was importing, on average, 10.3 million barrels of crude oil per day.

Over the last four weeks, crude oil imports have averaged nearly 10.6 million barrels per day, which is an increase of 203,000 barrels per day from the same four weeks last year.

U.S. inventories for distillates increased by 1.2 million barrels last week, and were above the average inventory level at this time of year.

Over the past two weeks, both consumers and businesses said they have been directly affected by rising energy prices.

Wal-Mart (down $0.23 to $47.19, Research), one of the largest U.S. retailers, blamed its second quarter sales slump on higher gas prices.

Company CEO Lee Scott told investors and analysts in a pre-recorded conference call yesterday that he was concerned what high energy prices meant for the company and its customers.

"I do feel good about the economy, but I worry about the effect of higher oil prices," he said.

At the same time, consumers felt the pinch of rising gasoline prices as the travel club AAA reported Thursday that pump prices hit record highs for the fifth consecutive day on Wednesday.

The nationwide average price of a gallon of regular unleaded hit $2.564 Wednesday, up 4 cents from the previous day, according to AAA. Over the last year, prices have climbed 70 cents, or almost 38 percent.

U.S. inflation figures published Tuesday and Wednesday also hinted that energy prices are taking a toll across a wide range of industries.

The Producer Price Index, which analyzes wholesale prices, rose 1 percent in July after being unchanged in June, beating analyst expectations.

The Consumer Price Index, the broad measure of retail prices and inflation, rose 0.5 percent, edging above Wall Street estimates, after having held steady in June.

The oil cartel OPEC increased its expectations for the global demand for oil in 2006 on Wednesday and predicted its supplies would be responsible for offsetting any drop in output from non-OPEC countries

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Wal-Mart its profits are being hurt by high gas prices. Click here.

Want to know which cars save on gas without compromising your safety? Click here.

How can you cash in on the oil boom? Click here for more.  Top of page

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