Oil dips below $70
Government report shows waning demand, indicating a more-than-adequate supply of oil products.
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NEW YORK (CNNMoney.com) -- Oil fell below $70 a barrel Wednesday after a government report showed demand for oil plunged.
Oil for November delivery settled down $1.31, or 1.9%, to $69.57 a barrel. Crude prices had stepped above $71 prior to the inventory report.
"A lot of bullish traders are growing tired of the demand story," said James Codrier, president of Liberty Trading Group. "The story has been that the economy is turning around and that will start showing up with an increase in energy usage."
The Energy Information Administration reported a rise in gasoline stockpiles that was twice as high as analysts' expectations The report also showed that distillates, used to make heating oil and diesel, increased by nearly double the amount analysts predicted.
"Today's report is adding to the idea that we have enough oil products, and even if demand picks up slightly, we have such a high supply right now," Cordier said.
The government also reported a surprise decrease in crude oil inventories, which Cordier said is due to the fact that the U.S. is importing less oil as refineries try to increase their margins by refining current stocks.
Earlier in the weak and prior to the inventory report, a softer dollar had been giving crude prices a boost. While the greenback recovered some ground Wednesday, it is still down 10% against a basket of currencies, since its most recent high in March.
Oil, like other commodities, is priced in dollars and a weaker greenback typically supports prices.
"We've seen a considerable rally across the board in commodities, with gold breaking out to new record highs. The gold bug has picked up momentum and it's spilling over," said John Kilduff, energy analyst at MF Global. "Oil is benefiting from inflation play and concerns about a weaker dollar."
But Cordier said with unemployment continuing to rise, a "lethargic" economy and high supplies of crude will push oil prices down.
"We could see crude touching $60 a barrel by the end of the year," Cordier said. "Investors will be disappointed because consumers are not increasing their demand for energy in the next weeks or months."
Inventory report. The Energy Information Administration reported a surprise decrease in crude stocks by one million barrels in the week ended Oct. 2. Analysts were expecting a rise of 1.9 million barrels, according to a consensus estimate collected by energy information provider Platts.
The government report showed that gasoline stockpiles increased by 2.9 million barrels, more than doubling analysts' expectations of a 1.3 million-barrel increase.
The government report also showed that distillates, used to make heating oil and diesel, rose by a 700,000 barrels, above analysts' expectations of a 400,000-barrel increase.
Gasoline prices. The national average price for a gallon of regular unleaded gas broke four days of unchanged prices and increased to $2.465, up four tenths of a cent from the previous day's $2.461, according to motorist group AAA. 
