Oil falls 9% to just above $35
Crude stocks fall unexpectedly, according to government report, but big build in fuel supplies points to lower demand.
NEW YORK (CNNMoney.com) -- Oil prices fell more than $3 a barrel or more than 9% - one of the largest percentage drops ever - on a shortened trading session Wednesday that brought more signs that demand continues to wane.
U.S. crude for February delivery settled $3.63 lower to $35.35 a barrel from the previous day's close of $38.98. Prices had been down $1.60 just before the report's release. Oil trading closed at 1:30 p.m. ET because of the holiday.
Earlier, the U.S. government reported that supplies and products used to make heating oil rose more than expected last week. The buildup points to falling demand as cash-strapped consumers and businesses cut back on spending.
"The economic slowdown is just doing a lot more than people thought," said James Cordier, founder of commodities brokerage OptionSellers.com.
Crude prices dropped suddenly in the last few minutes of the abbreviated session as investors hoping for a Christmas oil bonus waited till the last minute to get out of the market, according to oil analyst Stephen Schork, publisher of energy newsletter The Schork Report.
Oil price movements were also exaggerated because of the holiday week. "It's a very thinly traded Christmas eve," he said.
Supplies: The Energy Department said Wednesday that supplies of crude oil fell by 3.1 million barrels for the week ended Dec. 19.
Analysts had expected crude supplies to rise by 1.5 million barrels last week, according a survey by information firm Platts.
However, the government also said that fuel supplies had risen more than expected. Supplies of motor gasoline rose by 3.3 million barrels, and stocks of distillates, which are used to make diesel fuel and home heating oil, rose by 1.8 million, according to the report.
Investors were expecting a 900,000-barrel increase in gasoline supplies, and a 1.4 million barrel increase in supplies of distillates, according to the Platts survey.
The large build up in gasoline and distillate supplies indicates that demand continues to deteriorate. "There's just no reason for refineries to chase oil, as we have much more than we need," Cordier said.
Crude prices could shed another $5 a barrel, he added.
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