Oil prices drop under $100 a barrel

VIENNA, Austria (AP) - March 20, 2008 The U.S. Energy Information Administration's weekly inventory report said Wednesday that overall consumption of oil and its products fell 3.2 percent over the last four weeks compared with the same period last year. Demand for gasoline fell 1 percent during the same period.

The demand numbers in the report overshadowed data showing that supplies of crude oil grew less than expected last week, while gasoline and heating oil supplies fell.

Light, sweet crude for May delivery dropped $3.14 to $99.40 a barrel on the New York Mercantile Exchange. It was the first dip by a front-month oil contract under $100 since March 5. The contract fell $5.96 to settle at $102.54 a barrel on Wednesday.

In its daily report, Vienna's JBC Energy mentioned "fears for the US economy and selling across commodity markets by investment funds" as possible reasons for the decline.

The reaction to the tepid demand data marked a change from recent the focus on the falling U.S. dollar, with investors looking more closely at oil supply and demand fundamentals.

Prices have jumped sharply in recent weeks as investors looked to the dollar for direction and ignored evidence of rising supplies, falling demand and a weakening economy.

Oil and other commodities are viewed as a hedge against inflation, and tend to rise in price when the dollar falls. Also, a falling dollar makes oil less expensive for overseas investors.

Investors shrugged off EIA data showing that crude oil supplies grew just 200,000 barrels last week, much less than the 2.1 million barrel increase analysts surveyed by Dow Jones Newswires had expected on average.

Gasoline inventories fell 3.5 million barrels, when analysts had expected a small increase, and supplies of distillates, which include heating oil and diesel fuel, fell 2.9 million barrels, more than double the expected decline.

Further depressing demand for oil was refinery activity, which fell by 1.2 percentage points last week to 83.8 percent of capacity, a sign refiners are cutting back on production of low-margin gasoline. Gasoline crack spreads - the difference between what refiners pay for oil and make for selling gasoline - have dipped into negative territory several times in the last week, analysts said.

April heating oil futures slipped by 6.67 cents to $2.95 a gallon while April gasoline futures lost 3.73 cents to sell for $2.523 a gallon. April natural gas futures fell 27 cents to $8.754 per 1,000 cubic feet.

In London, Brent crude futures dropped $2.30 to $98.42 a barrel on the ICE Futures exchange.