Oil settles below $90 on government supply report

[December 31, 2010]  NEW YORK (AP) -- Energy prices dropped Thursday after the government said oil and natural gas supplies fell less than expected last week.

Benchmark crude for February delivery lost $1.28 to settle at $89.84 per barrel. It was the first time in more than a week that oil settled below $90.

Oil has surged for most of December as U.S. petroleum consumption ticked higher and traders looked forward to 2011, when oil is expected to touch $100 per barrel and perhaps go higher.

Rising oil prices have pushed gasoline pump prices higher. They were up again on Thursday. The national average for a gallon of regular hit $3.07, about six cents higher than a week ago and 45 cents more than a year ago. Drivers across the country pay a range of prices at the pump. In California you'll pay about $3.32 a gallon. In New York gas goes for around $3.30 a gallon. The average is $2.91 in Texas and $2.82 in Colorado.

Some analysts think the national average will hit $3.75 by spring.

The price of benchmark crude tumbled Thursday after the Energy Department's Energy Information Administration weekly supply report. The EIA said oil supplies declined by 1.3 million barrels last week. A drop in supplies often supports higher prices, but analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., thought the drop would be bigger -- around 3.2 million barrels.

Investors worried that the report showed demand for energy was not continuing to pick up, despite positive economic news. The Labor Department on Thursday said the number of people applying for unemployment benefits fell to 388,000, the lowest level in almost two and a half years.

Meanwhile, Freddie Mac said a fixed-rate 30-year mortgage rose to 4.86 percent, the highest since May. That raised concerns about whether higher mortgage rates would slow the recovery of the housing market.

The EIA also released its weekly report on the nation's natural gas supplies, which showed they shrank by 136 billion cubic feet. That's less than analysts expected and a relatively small dent in total supplies of more than 3.2 trillion cubic feet, eight percent above the five-year average. Milder weather across most of the country over the next 10 days should reduce heating demand and keep a lid on natural gas prices.

On the Nymex, natural gas rose 5.1 cents to settle at $4.338 per 1,000 cubic feet. In other energy trading, heating oil gave up 3.61 cents to settle at $2.4854 per gallon. Gasoline gained 0.14 cent to settle at $2.3918 per gallon.

In London, Brent crude fell $1.05 to settle at $93.09 per barrel on the ICE Futures exchange.

[Associated Press; By CHRIS KAHN]

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