Oil futures withdrew from a record $89 a barrel Wednesday, ending lower after government data showing larger-than-expected gas and oil supplies outweighed worries about tension in northern Iraq.
Trading was volatile throughout the session as oil futures were buffeted by a number of headlines, including news that Turkey's parliament approved a government plan to attack Kurdish rebels in northern Iraq and word of an explosion at a small refinery in Montana.
Reports by the Energy Department, the International Energy Agency and the Organization of Petroleum Exporting Countries over the past week have all supported a view that oil supplies are falling as demand is growing.
But the Energy Department's inventory report Wednesday countered those perceptions.
"Inventories are rising, not falling," said Tim Evans, an analyst at Citigroup Inc. in New York. "Demand is falling, not rising."
Light, sweet crude for November delivery fell 21 cents to settle at $87.40 a barrel on the Nymex. It was crude's first price decline in 7 sessions.
The Energy Information Administration reported that crude inventories rose by 1.8 million barrels during the week ended Oct. 12, more than the 1 million barrel increase analysts surveyed by Dow Jones Newswires, on average, had expected.
Oil prices initially fell on that news, then reversed course and rose after the Turkish parliament vote. Traders worry that any escalation in the conflict between the Kurds and Turkey will cut oil supplies from northern Iraq. Despite the decision, Turkey's government said a move into Iraq isn't imminent.
Many analysts think a Turkish incursion would have a minimal impact on Iraqi oil supplies. Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, thinks traders looking at the EIA report saw the price runup on the Turkey news as an opportunity to sell, locking in profits.
The EIA also reported that gasoline supplies rose by 2.8 million barrels last week, nearly triple analyst expectations for a 1 million barrel increase. November gasoline fell 2.71 cents to settle at $2.1466 a gallon on the Nymex.
Earlier, prices rose on news of an explosion at an Exxon Mobil Corp. refinery in Montana that can process 60,000 barrels of oil per day. The plant continues to operate, though a spokesman said some production could be curtailed.
Distillates, which include heating oil and diesel fuel, rose by 1 million barrels last week, the EIA said. Analysts had expected distillate supplies to fall by 400,000 barrels. November heating oil fell 1.98 cents to settle at $2.3189 a gallon on the Nymex.
In other Nymex trading, natural gas futures rose 9.1 cents to settle at $7.458 per 1,000 cubic feet. In London, December Brent crude fell 42 cents to settle at $83.13 a barrel on the ICE Futures exchange.
The EIA also reported that refinery activity fell last week by 0.5 percentage point to 87.3 percent of capacity. Analysts had expected refinery utilization to grow by 0.4 percentage point.
Crude imports jumped last week by an average of 539,000 barrels a day, while imports of gasoline fell by 230,000 barrels a day on average.
Demand for gasoline rose by about 53,000 barrels last week, but is off 0.5 percent over the past four weeks, the EIA said.
Many analysts believe speculative investing is the real culprit behind oil's 11 percent rally over the last week, arguing that supply and demand fundamentals do not support prices near $90 a barrel. Traders see technical signs in the differences between current and future oil contracts that suggest money continues to be plowed into oil futures. Those signals spark new buying that pushes prices even higher.
"I think the market has been trading on momentum," said Antoine Halff, head of energy research at Fimat USA LLC.
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