Crude Oil Dips On Reserves Increase

January 7, 2009 2:42 p.m. EST

Washington, DC (AHN) - The price of oil slid nearly 7 percent after the Energy Information Administration (EIA) reported a much greater than expected rise in oil reserves for the week ending Jan. 2.

The EIA reported a 6.7 million barrel increase in weekly oil inventories, much larger than the 800,000 barrel increase expected by analysts, according to a Bloomberg News survey.

Oil prices had risen the past week, fueled by worries the tension in the Middle East would disrupt supplies of the commodity; however, the surge in reserves the past week has tempered those fears.

"This has been a speculatively led rally here in the past couple of weeks," said Jim Ritterbusch, president of energy consultancy Ritterbusch & Associates, according to the Associated Press.

"This report's telling us that we've got a big supply cushion out there that can easily absorb a temporary curtailment."

Gasoline inventories jumped as well, up 3.3 million barrels for the week, more than the 1 million barrel increase analysts had expected,

Reserves of distillates, which include heating oil and diesel, rose 1.8 million barrels for the week, above the 1.1 million barrel increase analysts had anticipated.

The demand outlook for oil is also weighing on the commodity. Demand for supertankers to store oil has risen of late. Frontline Ltd., the world's biggest supertanker company said oil investors want to charter upward of 10 vessels to store crude.

Crude oil is trading 6.7 percent lower to $45.31 a barrel as of 12:00 p.m. ET.