Oil Little Changed After Falling on Supply Gain, Fuel Demand

June 4 (Bloomberg) -- Crude oil was little changed near $66 a barrel after falling the most in two weeks yesterday as a government report showed that U.S. supplies unexpectedly increased as fuel consumption plunged to a 10-year low.

Inventories climbed 2.9 million barrels to 366 million in the week ended May 29, according to the Energy Department. The gain occurred as imports surged 9.9 percent and refineries increased operating rates to the highest level in six months. Fuel demand fell to the lowest since May 1999. Weaker U.S. stocks also weighed on oil prices.

“An increase in inventory levels and oil imports helped push the price lower,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “Technically oil cannot go up forever, so at some point there has to be a pull back in the marketplace.”

Crude oil for July delivery dropped 17 cents to $65.95 a barrel on the New York Mercantile Exchange at 10:09 a.m. in Sydney. Yesterday, the contract fell $2.43, or 3.5 percent, to settle at $66.12 a barrel, the biggest decline since May 15.

Prices jumped $7.53 between May 21 and June 1, the longest rally in a year, as the weakening dollar bolstered the appeal of energy and metals futures as an alternative investment and equities rose.

The Energy Department report was forecast to show that crude-oil stockpiles fell 1.5 million barrels, according to the median of 15 estimates by analysts surveyed by Bloomberg News.

Pressure on Oil

All 10 industries in the S&P 500 retreated as Federal Reserve Chairman Ben S. Bernanke told lawmakers that large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.

“Chairman Bernanke’s sober words helped drop the S&P 500 by over 2 percent at times during the day, helping put pressure on oil to trade lower,” Sander said.

The S&P 500 slid 1.4 percent and the Dow Jones Industrial Average 0.8 percent.

U.S. fuel demand fell 900,000 barrels to 17.7 million barrels a day last week, the biggest decrease since the week ended Jan. 9, the report showed. Gasoline consumption slipped 518,000 barrels to 9.02 million, the biggest decline since January 2005.

Gasoline stockpiles fell 215,000 barrels to 203.2 million last week, the report showed. A 650,000-barrel increase was forecast in the Bloomberg News survey. The peak U.S. gasoline demand period lasts from late May’s Memorial Day holiday until Labor Day in early September as Americans take to the highways for vacations.

Oil on Tankers

Gasoline for July delivery fell 0.75 cents to $1.8941 a gallon at 10:09 Sydney time in New York. Yesterday, it dropped 2.36 cents, or 1.3 percent, to end the session at $1.9016 a gallon. It was the biggest decline since May 15.

Refineries operated at 86.3 percent of capacity, up 1.2 percentage points from the previous week and the highest since the week ended Dec. 5, the report showed.

In addition to supplies on land, traders have kept as much as 100 million barrels of crude oil on tankers. BP Plc, Royal Dutch Shell Plc and Hess Corp. were among oil companies whose first-quarter earnings were boosted by storing crude in tankers. By anchoring vessels offshore, companies were able to profit from the so-called contango, in which oil contracts for delivery in the future are more expensive than near-term supply.

Commodity prices also dropped because the dollar snapped four days of losses against the euro as investors flocked to safety. The dollar traded at $1.4158 per euro at 6:16 a.m. in Tokyo, after climbing 1 percent yesterday in New York in its first advance in five days.

The Reuters/Jefferies CRB Index of 19 raw materials fell 2.8 percent to 253.05, the biggest drop since April 20.

Brent crude for July delivery rose 9 cents to $65.97 a barrel on London’s ICE Futures Europe exchange at 10:03 a.m. in Sydney. It dropped $2.29, or 3.4 percent, to end yesterday’s session at $65.88 a barrel, the biggest decline since April 20.