Oil plunges 6%
Crude tumbles after the government's weekly supply report shows a surprise surge in oil stockpiles. Weakness in U.S. and Chinese equities add to recovery woes.
NEW YORK (CNNMoney.com) -- Oil prices plunged 6% Wednesday after the government reported a surprise increase in oil stockpiles, U.S. and Asian stock markets fell, and a report on durable goods came in much weaker than expected.
"We had the perfect storm happen to the bulls today," said James Cordier, founder of OptionSellers.com. "People are betting on future demand for energy and a lot of investors came to the realization that this demand is not right around the corner by any means."
U.S. light crude for September delivery settled down $3.88 to $63.35 a barrel, after dipping as low as $62.76. Tuesday, oil shaved off $1.15 after a report showed consumer confidence fell more than expected in July.
Supply report: In its weekly inventory report, the Energy Information Administration said that crude stocks jumped by 5.1 million barrels to 347.8 million barrels in the week ended July 24. Analysts were looking for a more modest build up of 1.1 million barrels, according to a consensus estimate from Platts, an energy research firm.
Oil inventories are above the upper boundary of the average range for this time of year, according to the report.
"Today's report continues to show that demand by the U.S. -- which by far is world's largest consumer of oil -- is just so stagnant," said Cordier. The low season for demand is ahead, too. Demand typically dips in the coming months, between the summer driving season and the winter heating season.
Distillates, used to make heating oil and diesel fuel, increased by 2.1 million barrels and are also above the upper boundary of the average range for this time of year. Analysts were looking the supply to be 1 million barrels.
Gasoline supplies, meanwhile, decreased by 2.3 million barrels last week, according to the report. Analysts were looking for a decline in gasoline stockpiles of 1.1 million barrels. Even as gasoline stocks decreased in the most recent week, the level of inventories remain in the upper half of the average range for this time of year, according to the report.
Overall, the amount of product supplied in the past month is 4.1% lower than the same time last year.
Stock markets: A down day on Wall Street also pushed oil prices lower because investors read a stock sell-off as an indication of a weakening economy, which demands less oil.
U.S. durable goods orders plunged 2.5% in June, a much bigger decline than economists were expecting. The drop was another sign that the economy is not stabilizing as quickly as expected.
Chinese stock markets tumbled, too, adding to pessimism in the oil market. The Hong Kong Hang Seng fell 2.4% and the Hong Kong HSCC Red Chip fell 2.7%.
Hopes for a recovery in the oil market have been partially based on a recovery in Asian developing markets. "Especially in Asia, the stock markets have been on a tear and people are pointing towards that for future demand of energy," said Cordier.