Oil slides 3% on inventory jump

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NEW YORK (CNNMoney.com) -- Oil prices dropped 3% on Thursday as a government inventory report showed that crude supplies jumped more than expected, the dollar firmed against its rivals and stocks cooled.

Oil for December delivery fell $2.34 and settled at $76.94 a barrel.

"Oil is catching bearish momentum from three different sides today with the inventory report, the stock market slide and a stronger dollar, " said James Cordier, president of Liberty Trading Group.

Equities turned lower after a six-day advance, and the dollar gained strength against the euro, pound and yen.

Crude oil, like other commodities, is priced in dollars, and a stronger greenback weighs on prices.

While crude prices may rally for brief periods, Cordier expects them to trend lower through November and December, when demand is generally at its lowest level of the year.

"We're going to have ebbs and flows with the outside market," Cordier said. "The Fed will hold interest rates near 0% in the foreseeable future, which begs investors to take longer positions. But fundamentally, prices will wind up closer to $70."

Inventory report. The Energy Information Administration reported a jump of 1.8 million barrels in crude stocks. Analysts expected oil inventory to rise by 1 million barrels, according to a consensus estimate collected by energy information provider Platts.

The government report showed an increase of 2.5 million barrels in gasoline stockpiles, above analysts' expectations for a modest rise of 700,000 barrels.

Distillates, used to make heating oil and diesel, surprisingly increased by 300,000 barrels, against analysts' expectations for a drop of 900,000 barrels.

Gasoline prices. The national average price for a gallon of regular unleaded gas decreased to $2.650, down four tenths of a cent from the previous day's $2.654, according to motorist group AAA. This is the seventh consecutive decrease.