Oil down on demand concerns, U.S. inventory build
NEW YORK (Reuters) - Oil prices were lower on Wednesday as concerns about the impact of the global financial crisis on demand and rising U.S. inventories outweighed a move by central banks to cut interest rates.
Earlier, oil prices had dropped to a fresh 10-month low, but pared some losses when U.S. stocks rose after five sessions of losses.
News that OPEC members were considering an emergency meeting in November to discuss the impacts of the financial crisis on oil demand also underpinned prices.
U.S. crude settled at $88.95 a barrel, down $1.11. London Brent crude settled at $84.36 a barrel, down 30 cents.
"We've fallen to a new low for crude prices this year on the latest inventory report and amid the raging credit crisis," said Phil Flynn of Alaron Trading in Chicago.
"In the past, whenever there was a credit crisis, investors bought oil as a hedge. But that has changed now, because everybody is realizing that the current credit crisis is weakening economies and that's a big problem that will hurt demand."
U.S. crude inventories rose 8.1 million barrels last week as they recovered from storm disruptions, according to the U.S. Energy Information Administration's weekly report. The rise was much more than the 2.3-million-barrel build forecast by analysts in a Reuters poll.
The EIA report also showed gasoline stocks increased 7.2 million barrels, compared with forecasts for a 1.1-million-barrel build, while total demand for products over the past four weeks dropped 8.6 percent compared with a year ago.
U.S. crude fell to $86.05, its lowest level since December 6, 2007, when British government action to prop up its banks failed to reassure financial markets and oil traders anticipated oil demand would fall.
After the U.S. Federal Reserve led a coordinated interest rate cut to shore up the global economy and financial markets rallied, oil prices briefly rose.
But support from the rate cut was eclipsed by persisting worries about demand, which has fallen in the United States and other developed economies due to the financial market turmoil and high fuel costs.
"The rate cut is supportive for oil, obviously. The question is, is it going to be enough to inspire confidence? You can cut rates to the bone, but if nobody's willing to lend you money, it doesn't really matter," Flynn said.
The Federal Reserve cut its key interest rate by half a percentage point to 1.5 percent. Other banks cutting interest rates included China, which reduced its key rate by 0.27 percentage point.
Surging oil demand in China and elsewhere in Asia played a large part in oil's sustained rally that culminated in a record $147.27 a barrel in July.
Many analysts had predicted fuel demand in China would remain strong, even if it plummeted in the United States, the world's biggest energy consumer, but concern has mounted that the Chinese economy will not escape global economic turmoil. Continued...
