Oil ends over $90 a barrel after falling
Crude stockpiles grew by 4.3 million barrels last week after shrinking for eight straight weeks, driving prices lower.
NEW YORK (CNNMoney.com) -- Oil prices fell sharply Wednesday after the government reported a surprise increase in crude supplies.
U.S. light crude for February delivery fell $1.06 to $90.84 a barrel on the New York Mercantile Exchange after trading down $1.21 prior to the report's release.
In its weekly inventory report, the U.S. Energy Information Administration said crude stocks grew by 4.3 million barrels last week, after posting declines for eight weeks in a row. Analysts were looking for a drop of 300,000 barrels according to a Dow Jones poll.
"The market looked at the report as bearish, given the increase in crude stocks," said Andrew Lebow, a broker at MF Global in New York.
Distillates, used to make heating oil and diesel fuel, rose by 1.1 million barrels while gasoline supplies rose by 2.2 million barrels. Analysts were looking for an increase of 1 million barrels in distillates supplies and a rise of 2.4 million barrels in gasoline stockpiles.
Refinery activity fell by 4.2 percent last week to 87.1 percent of capacity. Analysts had expected a decline of 0.7 percentage point to 90.6 percent of capacity.
"The Gulf Coast is rebounding supplies," says Phil Flynn, senior market analyst at Alaron Trading in Chicago.
"I think problems in the Gulf Coast - bad weather, fog, problems with shipping channels and year-end tax moves - really threw down supplies."
Many U.S. oil companies purposely lower their inventories at the end of the year for tax purposes. Now that a new year has begun, Flynn said, companies are beginning to replenish their supplies.
"I think we'll see more builds in the Gulf Coast over the next few weeks," Flynn added.
Crude traded above $100 a barrel earlier this month, fueling fears that the U.S. economy could topple into recession.
President Bush urged OPEC member nations on Tuesday to increase crude supply, arguing that high oil prices could further damage the U.S. economy.
Earlier Wednesday, the Secretary-General of OPEC, Abdalla Salem al-Badri, said the cartel "would not hesitate" to boost crude supplies if market conditions justify an increase, according to the Associated Press.
OPEC could decide to boost output when the group meets on Feb. 1 in Vienna, Austria.