Oil Falls After U.S. Crude Supplies Climb, Housing Starts Drop

June 17 (Bloomberg) -- Oil fell from a six-week high after a government report showed U.S. crude supplies increased last week as refiners cut processing rates, and on concerns over the strength of the recovery as housing starts declined.

Oil reversed its 1 percent gain yesterday as new home construction fell 10 percent in May, the most since March 2009, and building permits dropped, the U.S. Commerce Department said yesterday. Crude supplies unexpectedly gained 1.69 million barrels, the Energy Department said. Analysts had forecast a 1 million barrel drop.

“Inventories are generally still pretty high, but the oil price has held up well relatively,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “Markets are still assuming a U.S. recovery, albeit an uneven recovery road.”

Crude oil for July delivery dropped as much as 46 cents, or 0.6 percent, to $77.21 a barrel in electronic trading on the New York Mercantile Exchange. It was at $77.26 at 7:22 a.m. Singapore time. The contract yesterday rose 73 cents, or 1 percent, to $77.67 a barrel, the highest settlement price since May 5. Futures are up 8.8 percent from a year ago.

Crude climbed yesterday as motor fuels gained on signs of higher consumption in the peak U.S. driving season from the Memorial Day weekend in late May to Labor Day in early September. Gasoline demand rose 1.6 percent to 9.34 million barrels a day, the highest level since the week ended Aug. 28.

Gasoline supplies fell 636,000 barrels to 218.3 million last week, the Energy Department said.

Crude oil stockpiles rose to 363.1 million in the week ended June 11, the department said. Inventories of distillate fuel, a category that includes diesel and heating oil, increased 1.8 million barrels to 156.6 million. A 1-million-barrel gain was forecast.

Brent crude oil for August settlement rose $1.04, or 1.4 percent, to end the session at $78.14 a barrel yesterday on the London-based ICE Futures Europe exchange.