Oil Settles Near $66 on Inventory Rise, Dollar Gains

Oil fell more than 3 percent Wednesday, dragged down by an unexpected build in U.S. crude stockpiles and a stronger dollar.

U.S. light sweet crude traded down $2.43 to settle at $66.12 a barrel, after falling as low as $64.95 during intraday activity. London Brent crude fell $2.29 to $65.88 a barrel.

Crude oil inventories in the world's top consumer jumped by 2.9 million barrels last week as imports rose, according to data from the U.S. Energy Information Administration, against analyst forecasts for a draw.

Pressure also came as the dollar recovered from a 2009 low against the euro after monetary sources in Asia said they would keep buying U.S. Treasurys even if the U.S. credit rating were cut. The stronger dollar tends to depress the value of commodities denominated in the greenback.

"The crude build and the dollar's rise are the major factors in today's drop in crude oil futures," said Andy Lebow, broker of MF Global in New York. "Prices rallied recently based on hopes of improving oil demand but the latest data doesn't support that line of thinking."

Total U.S. fuel demand over the four weeks ending May 29 fell by 7.7 percent against year-ago levels, according to the EIA. U.S. gasoline demand over the period, which included the Memorial Day holiday weekend that traditionally kicks off summer driving season, was down 0.4 percent from last year.

Signs of a recovery in the global economic crisis have lifted stocks markets in recent weeks, raising expectations oil demand could rebound and sending crude prices up 30 percent in May. U.S. stocks dropped Wednesday on weaker-than-expected economic data showing the U.S. services sector shrank again last month.

U.S. President Barack Obama flew to OPEC kingpin Saudi Arabia Wednesday, where he said he would raise the issue of price volatility with King Abdullah and indicate no halt to the need for oil imports.

The Organization of Petroleum Exporting Countries last week agreed to leave production targets unchanged after setting a series of cuts last year to stem oil's steep slide from near $150 a barrel as the economic crisis battered demand.

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Top Libyan oil official Shokri Ghanem told the Reuters Global Energy Summit that oil prices could top $90 this year and should average $70-80 a barrel in 2009. The head of the International Energy Agency, however, warned that a quick rise in fuel costs could damage any fragile recovery in the global economy.

"If the price moves too quickly relative to economic recovery, that will certainly hurt the economic recovery so we have to watch carefully," IEA Executive Director Nobuo Tanaka told the Reuters Global Energy Summit.

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