Oil prices fell for a fourth straight day Wednesday after the government reported an unexpected increase in crude oil inventories and a decline in supplies of gasoline and distillates including heating oil.
"Just about all the expectations were wrong," said Tim Evans, an analyst at Citigroup in New York.
The surprise build in crude supplies undermined oil prices, but much of that increase took place on the West Coast, where most gas and oil infrastructure is isolated from the rest of the country, said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill.
And while the decline in gasoline inventories supported gasoline futures, demand is falling. That will pressure gasoline prices down the road, analysts said.
"This is a mixed report," Rafield said.
U.S. light, sweet crude for November delivery fell 8 cents to settle at $79.97 per barrel on the New York Mercantile Exchange, after fluctuating between gains and losses for much of the day.
November gasoline futures rose 1.31 cents to settle at $1.9959 a gallon, and heating oil rose 1.64 cents to settle at $2.1787 a gallon.
November natural gas futures fell 15 cents to settle at $7.277 per 1,000 cubic feet. Natural gas futures rose 37.7 cents on Tuesday, in part on concerns that a weather system could develop to tropical strength and threaten gas and oil infrastructure in the Gulf of Mexico. The latest forecasts suggest that system is weakening.
London Brent crude fell 19 cents to settle at $77.19 a barrel on the ICE Futures exchange.
In its weekly inventory report, the Energy Department's Energy Information Administration said crude supplies rose by 1.2 million barrels during the week ended Sept. 28.
One million barrels of that increase were on the West Coast, the EIA said.
Crude inventories at Cushing, Okla., the Nymex contract delivery point, rose by about 300,000 barrels last week, while storage levels elsewhere in the Midwest fell. Cushing inventories have driven market sentiment in recent weeks. A week ago, oil prices rallied despite an overall increase in crude inventories because supplies at Cushing fell.
Gasoline inventories fell by 100,000 barrels last week, while supplies of distillates, which include heating oil and diesel fuel, fell by 1.2 million barrels. Analysts had expected gasoline inventories to grow by 400,000 barrels, and distillate supplies to increase by 700,000 barrels.
Refinery utilization rose by 0.6 percentage points to 87.5 percent of capacity. Analysts had expected an 0.4 percentage point increase.
Crude imports fell by an average of 189,000 barrels a day last week to 10.25 million barrels, while gasoline imports rose by 102,000 barrels to 1.15 million barrels a day.
Demand for gasoline slid by about 115,000 barrels last week, the EIA said.
At the pump, meanwhile, gas prices slid 0.2 cent overnight to a national average of $2.786 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 in May. In recent weeks, gas prices have remained flat, despite analyst predictions that they would rise to keep pace with September's rally by crude futures into record territory above $80 a barrel.
Gas prices are 48 cents a gallon higher than they were a year ago, however, one reason why gasoline demand is weak.
"What we have here is evidence that there's plenty of crude oil around," said Evans. "There's also an ongoing story here that demand for (gasoline) isn't strong."
Evans believes oil's true value is closer to $65 a barrel. Many analysts feel oil prices have been driven up by speculative buying, and they argue that the market's underlying supply and demand fundamentals do not support the record prices of recent weeks.
However, while many analysts expect oil prices to begin a seasonal decline into winter, few are willing to predict when that slide will begin.
"This market ... is a very rapidly-moving beast," said Evans.