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Oil prices tumble 4%
Light crude closes below $54 after EIA says crude oil stocks rose by 4.1 million barrels last week.
March 23, 2005: 4:30 PM EST

NEW YORK (CNN/Money) - Oil prices tumbled Wednesday as U.S. inventories of crude rose to the highest level in nearly three years and a recovering dollar lured some fund money out of commodities.

Crude oil for May delivery settled down $2.22 a barrel to $53.81 in the regular trading session on the New York Mercantile Exchange. It hit a record of $57.60 last week.

In London, Brent crude fell $1.55 to $53.04 a barrel on the International Petroleum Exchange.

Oil prices recouped some of their losses after the open-call session ended on news of a deadly explosion at BP PLC's refinery in Texas City, Texas, the third-largest refinery in the United States.

New York gasoline futures soared to a record $1.6080 a gallon in electronic trade on news of the refinery explosion, which reportedly killed four people, and crude bounced 44 cents higher to $54.25.

Losses during the regular session came after the U.S. Energy Information Administration said in its weekly report that crude stocks rose by 4.1 million barrels last week to 309.3 million barrels, the highest level since July 2002.

Crude stocks have risen for the past six weeks to more than 23 million barrels above their level at this time last year.

The impact of the crude stock build was tempered by a big fall of 4.1 million barrels in gasoline stocks to 217.3 million barrels, tightening supply heading into spring. Gasoline demand has been strong despite record-high prices at the pump.

Futures prices were also pressured in part by a rebound in the dollar's value to a one-month high against the euro -- boosted by the Federal Reserve's decision Tuesday to raise interest rates by a quarter percentage point.

Oil has risen around $10 this year as dollar weakness encouraged funds to switch money out of treasury markets and into commodities.

"The U.S. dollar recovery yesterday and today is forcing some funds to part with their longs. They were looking for an excuse to take some profits and they found that excuse in the dollar strength," said Jim Ritterbusch of Ritterbusch and Associates in Illinois.

Inflation worries also grew as the U.S. government said on Wednesday that a big jump in energy costs pushed consumer prices up 0.4 percent in February and that the pace of underlying inflation also quickened.

Analysts do not expect oil prices to fall too far as booming demand in the United States and China is straining global production capacity.

OPEC President Sheik Ahmad al-Fahd al-Sabah said Tuesday producers would not need to decide for up to two weeks whether to increase supply by another 500,000 barrels per day, but could act quickly if needed.

The Organization of Petroleum Exporting Countries agreed March 16 to immediately raise output limits by 500,000 bpd but failed to halt crude's rally with prices shooting to a record the following day.

Many analysts say OPEC's output hikes will leave the cartel with little spare production capacity to deal with unexpected supply outages. The group is already pumping at close to a 25-year high and non-OPEC producers are at full tilt.

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