Oil falls below $67 US a barrel

Oil prices tumbled below $67 US a barrel to 16-month lows Wednesday after the U.S. government reported big increases in domestic fuel supplies — more evidence that the economic downturn is drying up energy demand.

The U.S. Energy Information Administration said crude oil inventories jumped by 3.2 million barrels last week, above the 2.9-million-barrel increase expected by analysts surveyed by energy research firm Platts. Gasoline inventories rose by 2.7 million barrels last week, and inventories of distillates, which include heating oil and diesel, rose by 2.2 million barrels.

Over the last four weeks, the EIA said, motor gasoline demand was down 4.3 per cent from the same period last year. Distillate fuel demand was down 5.8 per cent, and jet fuel demand was down 9.2 per cent.

"The main theme here that's driving this market into new low ground is demand deterioration," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "As we begin to see evidence that demand is levelling — it doesn't have to increase, just level — then we can start discussing a possible price bottom. But it appears premature at this point."

Light, sweet crude for December delivery fell $5.43 US to settle at $66.75 on the New York Mercantile Exchange, after falling as low as $66.20. It was the lowest close for a front-month contract since June 13, 2007, when crude settled at $66.26.

The energy markets have also been weighed down by the weak stock market, as investors grow more pessimistic about how long it will take the economy to recover from the current global financial turmoil.