Oil Falls Back Below $96 Despite Big Drop in Supplies

Oil fell back in choppy trading as an increase in refined fuel stockpiles in the United States offset a sharp drop in supplies of crude.

U.S. light, sweet crude fell 64 cents to $95.69 a barrel by 2:55 ET. London Brent crude fell $1.17 to $94.37.

U.S. crude stocks tumbled by 6.8 million barrels last week, the Energy Information Administration said, the lowest level since October 2004. That surpassed analysts' expectations for a 1.3 million barrel decline.

"It was a shocking report. Crude oil stocks were down dramatically, partly because of lower imports and higher refinery runs," said Peter Beutel, president of Cameron Hanover.

Domestic distillate supplies, which includes heating oil, rose a larger-than-expected 1.5 million barrels, while gasoline stocks gained 5.3 million barrels.

Oil, gold and other commodities have started the year at record levels as investment funds diversify their portfolios to hedge against declining equity markets.

"Commodities remain supported by investment and asset allocation flows, but the risk is increasing for a correction once the asset allocations dry up," said Olivier Jakob of Petromatrix.

Gold and platinum surged to lifetime peaks earlier on Wednesday. Oil hit a record high of $100.09 a barrel last week.

Equity markets have moved in the opposite direction, concerned by the slowing U.S. economy. The U.S. stock market has had its worst-ever five-day start to the year.

Oil prices fell earlier in the session on a Goldman Sachs report that forecast a U.S. recession this year. That could dent oil demand from the world's largest energy consumer.

Some analysts are already factoring in a price decline later this year.

"I think over the mid term, looking ahead for the rest of the year, we would expect the price to soften. Our target price now for the year would be in the $80-$85 range," said Tom Nelson, oil analyst at Guiness Atkinson Funds.

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