Oil drops below $78 after US crude supplies jump

[June 23, 2010]  MOSCOW (AP) -- Oil prices fell below $78 a barrel Wednesday as downbeat economic data from Europe and a drop in U.S. crude supplies suggest a recovery in demand is likely to remain uneven.

Benchmark crude for August delivery was down 37 cents to $77.48 Wednesday morning in London in electronic trading on the New York Mercantile Exchange. The contract gained 76 cents to settle at $77.85 on Tuesday.

The drop in oil prices mirrored losses in stocks. Britain's FTSE 100 was down 0.6 percent in London after the Dow Jones industrial average closed 1.4 percent lower overnight.

The euro remained around Tuesday's values, near $1.2280 on Wednesday morning.

Crude has hovered above $77 a barrel this week as traders ponder whether global oil demand is strong enough to justify extending a rally from $64 on May 25. U.S. oil supplies had fallen in recent weeks before last week's gain.

Analysts noted that the weak euro and grim economic statistics are making it difficult to sustain a four-week rally in oil prices.

"Most of the data released over the last two or three weeks has not been consistent with the idea of a gathering economic recovery," Cameron Hanover said in a note.

"The correlation between oil prices and movement in the euro has been the firmest and best established of any factors over the last month, so weakness in the euro was easily translated into weakness in oil."

In the United States, crude inventories increased last week by 3.7 million barrels, the American Petroleum Institute said late Tuesday. Analysts had expected a fall of 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Inventories of gasoline and distillates also rose, the API said.

The Energy Department's Energy Information Administration is scheduled to announce its supply report later Wednesday.

"The bears must be satisfied," energy consultancy The Schork Group said in a report. "All told, it was a bearish report."

In other Nymex trading, heating oil fell 0.84 cent to $2.1045 a gallon, gasoline dropped 1 cent to $2.1230 a gallon and natural gas gained 0.1 cent to $4.766 per 1,000 cubic feet.

Brent crude was down 33 cents at $77.71 on the ICE futures exchange.

[Associated Press; By NATALIYA VASILYEVA]

Associated Press writer Alex Kennedy contributed to this report from Singapore.

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