Oil Prices Plunge To Nearly $35 On Record High Gasoline Inventories

New York, NY (AHN) - Crude oil futures tumbled for the third straight session on Wednesday, hitting $35 a barrel, as the markets entered Christmas holiday week.

Oil rates plunged by as much as 9.3 percent to close below $36 a barrel after the U.S. government released data on crude oil stockpiles for the last week, which remained high.

Crude has dropped by 76 percent through Wednesday from its peak level at $147.27 on July 11. Rising unemployment rates and weakening consumer spending have spread to gasoline as many drivers across the U.S. are driving less and have limited the amount of gasoline they buy.

A light sweet crude-futures barrel for February delivery moved down by $3.63, to close at $35.35 a barrel in electronic trading on Wednesday. Oil prices hit new record low level of $35.15 a barrel, just before the market closed early for the holiday.

On Tuesday, the contract continued the fall and dropped by 93 cents to close at $38.98 a barrel in overnight trading on the New York Mercantile Exchange as a report showed that the U.S. home prices slumped.

The market analysts are projecting that the price of oil is likely to fall below $25 a barrel next year and gas prices could drop lower than $1 in most regions of the markets as the recession expands to China.

Merrill Lynch Commodity Strategist Francisco Blanch, an energy analyst and CEO, said in a report on Thursday that demand is expected to consistently fall next year as slowdown in economy continues.

"A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required," Blanch wrote in a note to their clients.

Blanch added, "In the short run, global oil- demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations."

The predictions of the brokerage firm have been consistent with the fall in oil prices. In the month of October the company's analysts had projected that the oil rates are likely to drop below $50 a barrel.

Prices started dropping early trading session on Wednesday as the U.S. Energy Department report showed a larger-than-anticipated rise in the country's supplies of gasoline and distillate fuel, including heating oil and diesel.

The report said gasoline stockpiles jumped by 3.34 million barrels to 207.3 million barrels last week, which is more than the market analysts had projected to rise by 750,000 barrels.

Distillate inventories moved up by 1.81 million barrels to 135.3 million barrels. The crude supply declined by 3.1 million barrels last week.