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Oil falls on higher inventories, economic worries
By Moming Zhou & Polya Lesova, MarketWatch
Last update: 3:13 p.m. EDT April 1, 2009


NEW YORK (MarketWatch) -- Crude-oil futures fell Wednesday as U.S. petroleum inventories unexpectedly increased last week and as investors cast doubts on whether the Group of 20 nations can act in concert to pull the global economy out of recession.

Data from the Energy Information Administration showed surprising gains in gasoline and diesel inventories as demand fell. Crude inventories also rose from their highest level in 16 years, though not as much as expected. Adding more pressures in crude trading, data showed the U.S. labor market worsened again in March.

Crude for May delivery fell $1.27, or 2.6%, to end at $48.39 a barrel on the New York Mercantile Exchange.

"The increase in gasoline and crude stocks, combined with falling consumption, should put downward pressure on the entire petroleum market," said James Williams, economist at WTRG Economics. "The impact of the recession is clear in the petroleum data."

Gasoline inventories increased 2.2 million barrels in the week ended March 27, the EIA reported. Analysts surveyed by Platts had expected a decline of 1.8 million barrels.

The EIA also reported an increase of 300,000 barrels in distillate stockpiles, which include diesel and heating oil, while analysts had expected a drawdown for the week. Meanwhile, crude inventories rose 2.8 million barrels, staying at the highest level since July 1993.

However, crude inventories at Cushing, Okla., the delivery point for Nymex oil futures, fell 800,000 barrels to 30.9 million barrels.

On the Nymex, May reformulated gasoline fell 4.96 cents, or 3.5%, to $1.3717 a gallon and May heating oil dropped 2.21 cents, or 6%, to $1.3458 a gallon. May natural gas also lost 8.1 cents, or 2.1%, to $3.695 per million British thermal units.

The data showed weaker demand helped the buildups in inventories. Total demand for petroleum demand over the last four-week period averaged 18.9 million barrels a day, down by 4.4% compared to the similar period last year.

Among them, motor gasoline demand averaged 9 million barrels a day, down by 0.2% from a year ago, while distillate fuel demand slumped by 9.1%.

U.S. refineries operated at 81.7% of their operable capacity last week, down from the 82% a week ago, the EIA reported.

Late Tuesday, the American Petroleum Institute reported that crude supplies rose by 3.3 million barrels during the week ended March 27. Distillate stocks surged by 1.77 million barrels, while gasoline stocks fell by 451,000 barrels, said the Washington-based industry group, which uses different criteria to gauge inventories.

More grim economic news

Also weighing on crude's trading was more gloomy economic news.

U.S. private-sector firms cut 742,000 jobs in March, according to the ADP employment index.

It was the largest job loss recorded by ADP in its nine-year history. The size of the drop doesn't bode well for the government's report on nonfarm payrolls and joblessness due out Friday. See Economic Report.

And in Japan, the second-biggest oil consumer, a key indicator of business sentiment fell to its lowest level on record during the first quarter. See full story.

In London, the G20 meeting officially kicks off Wednesday evening