Crude slides on demand concerns
Government report shows the nation's supplies of oil and gas rose last week highlighting concerns about waning demand.
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NEW YORK (CNNMoney.com) -- Oil prices fell Wednesday amid concerns that global economic weakness will continue to crimp demand for energy.
Light, sweet crude for November delivery fell $1.11 to settle at $88.95 a barrel on the New York Mercantile Exchange.
Oil had tumbled more than $3.50 earlier Wednesday after the Energy Department reported a sharp rise in the nation's supplies of crude and gasoline.
The price of oil is down nearly 41% since it hit an all-time high of $147.27 a barrel in July. Oil prices have been pushed lower as the global economic slowdown has undermined the once robust demand for petroleum products.
"Energy continues to take its cues from the global economic situation," said John Kilduff, energy analyst at MF Global in New York.
Banks step in: Earlier on Wednesday, the Federal Reserve lowered its benchmark interest rate to 1.5% from 2%.
The emergency move was part of a coordinated effort by central banks worldwide to stabilize shaky financial markets.
Wall Street initially shrugged off the rate cut and stocks languished for most of the morning. But the sentiment appeared to change in the afternoon with the Dow Jones industrial average rising 1.45% with about two hours left in the session.
"Oil prices have used trends in equities in the past few days as an indication of economic health and future demand growth prospects," said Tom Pawlicki, oil industry analyst at MF Global in Chicago.
Over the past two weeks, various government agencies in the United States and abroad have taken unprecedented steps to restore confidence in the financial system, but to little avail. The Dow has lost 1,400 points, and the three major stock gauges have fallen to five-year lows as panicked investors have fled stocks.
"Until stocks form a bottom that traders can believe in, we don't anticipate any strength in oil prices," Pawlicki added.
Supplies rise: In its weekly inventory report, the Energy Information Administration said the nation's stockpiles of crude oil unexpectedly rose by 8.1 million barrels last week. Analysts had forecast crude stocks to have dropped by 1 million barrels, according to a survey of industry experts by energy research firm Platts.
Gasoline supplies also increased by a bigger-than-expected 7.2 million barrels. Estimates had called for a more modest 2-million-barrel rise.
Supplies of distillates - used to make heating oil and diesel fuel - fell unexpectedly by 500,000 barrels. Analysts expected supplies to rise by 1 million barrels.
Wednesday's report "feeds into the sense that the consumer is flat on their back," Kilduff said. And with the global economic outlook darkening, "demand for energy is not going be perking up any time soon."
The EIA noted in its report that demand for gas over the last four weeks dropped 5.3% from a year ago, to average nearly 8.8 million barrels per day.
Meanwhile, refineries operated at 80.9% of their operable capacity last week, up from 72.3% the week before, according to the EIA.
Retail gas: Prices at the pump, meanwhile, continued to fall Wednesday.
The national average price for a gallon of regular gas fell 3 cents overnight to $3.447, according to a daily survey by the American Automobile Association.
Gas prices are now down 16% from July's all-time high of $4.114 a gallon. 
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