Crude Oil Prices Fall More Than $4 Amid Reduced Gasoline Demand

New York, NY (AHN) - Crude dropped by more than $4 a barrel as higher prices will prompt a fall in fuel demand amid reports on lower supplies of oil and gasoline last week. Crude oil discontinued the rally of more than $130 a barrel mark in electronic trading on the New York Mercantile Exchange.

The New York contract went above $131 a barrel and recently fell $0.66 to $130.37 in after-hours.

Around 1:00 p.m. in New York, light sweet crude for July delivery was down by as much as $4.34, trading at $126.69 a barrel on the New York Mercantile Exchange.

Oil, which had set a record of over $135 a barrel over speculation of supply disruptions, had almost doubled compared to 2007 rates until last week.

The contract was already down by $1.80 to $129.23 a barrel just before the report on inventories was released by the Energy Department on Thursday.

The Energy Information Administration (EIA) said in a weekly report that crude supplies tumbled by 8.8 million barrels to 311.6 million for the week ending on May 23.

The market analysts had estimated that the U.S. stockpiles would increase by 750,000 barrels, according to a survey reported from Platts, an energy research company.

Gasoline supplies also declined by 3.2 million barrels to 206.2 million barrels, which also went against the projections by the analysts that inventories would grow.

The news pushed up the oil rates as high as $133.12 before the prices started to decline below $128-a-barrel mark after the reasons for the decline in the supplies were explained.

The report stated that the fall in the supplies was to temporary delays in crude-oil tanker off-loadings on the Gulf Coast.

Meanwhile, the economists are also expecting that due to motor gasoline rate spike, the U.S. drivers are likely to reduce fuel purchases till their spending confidence increases.

"The bearish demand outlook is starting to weigh on people," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, MA, told Bloomberg.

"The note about temporary delays means that the crude number is meaningless," Lynch added.