Oil futures finished at their lowest level in five weeks Wednesday, on concerns that oil demand in the U.S., the world's biggest consumer of crude, is weakening.
Light, sweet crude for September delivery settled down $1.86, or 2%, to $91.93 a barrel on the New York Mercantile Exchange, the weakest finish for the front-month contract since June 27. Brent crude on ICE Futures Europe recently traded down $3.47, or 3%, to $112.99 a barrel.
Futures pushed lower after the Department of Energy said U.S. commercial oil inventories rose 1 million barrels last week, while gasoline inventories soared. The figures point to weakening U.S. demand for oil and fuel, and come against a backdrop of data suggesting the economic recovery is stalling.
"It's just one more signpost showing slowing oil demand, which is ultimately what's driving prices lower here," said Matt Smith, oil analyst at Summit Energy in Louisville, Ky.
Gasoline stockpiles last week jumped 1.7 million barrels, according to the DOE's Energy Information Administration. Inventories of distillates, including heating oil and diesel, rose 400,000 barrels. A bright spot came from refinery utilization rates, which rose 1 percentage point to 89.3% of capacity.
Analysts surveyed by Dow Jones Newswires expected crude stockpiles to rise 1.1 million barrels. Gasoline inventories were seen rising 100,000 barrels, while distillate stocks were seen increasing 1.7 million barrels. Refineries were seen cutting operations by 0.2 percentage point relative to capacity.
Gasoline futures sold off sharply Wednesday amid the sharp build in inventories. Front-month September reformulated gasoline blendstock, or RBOB, settled down 10.60 cents, or 3.5%, to $2.9313 a gallon.
Most worrisome to oil-market watchers are the growing signs suggesting gasoline demand, which typically peaks this time of year, is weakening. Gasoline demand for the four-week period ended July 29 fell 3.6% from a year ago to 9.06 million barrels a day, according to the EIA. That is the lowest July reading in nine years.
"You can argue whether or not we're in a recession, but the demand numbers make it sound like we're in a recession," said Phil Flynn, oil analyst at PFG Best in Chicago.
Elsewhere in the economy, indications of stalling have emerged. The U.S. nonmanufacturing sector grew at a sluggish pace last month, according to data released Wednesday from the Institute for Supply Management. On Tuesday, a similar reading on the manufacturing sector came in significantly weaker than expected.
Some traders have suggested that the Nymex contract could be headed toward $90 for the first time since late June.
Factors outside the U.S. have been aiding the recent selloff in crude. Saudi Arabia, the world's biggest oil exporter, has boosted production to its highest level since the early 1980s due to the removal of Libyan exports, an official told Dow Jones Newswires this week.
Moreover, emergency oil reserves are just starting to hit the market. The EIA reported Wednesday that 3.6 million barrels of crude from the Strategic Petroleum Reserve were delivered last week.
September heating oil settled down 7.27 cents, or 2.4%, to $3.0189 a gallon.