Oil Tumbles Over Supply Concerns

Oil prices fell sharply Thursday after the Energy Department reported unexpected declines in crude oil supplies last week but said the drop was due to temporary delays in unloading oil tankers along the Gulf Coast.

The decline of more than $4 came as a stronger dollar and concerns about gas demand also weighed on prices.

Retail gas prices, meanwhile, rose to a new record above $3.95 a gallon.

Light, sweet crude for July delivery fell $4.41 to settle at $126.62 a barrel on the New York Mercantile Exchange. It was the lowest settlement in two weeks and the biggest single-day price drop since March 19.

In Washington, meanwhile, the Commodity Futures Trading Commission revealed that it is six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation. The CFTC also announced a handful of initiatives designed to increase transparency of the energy futures markets.

After Thursday's inventory report, prices initially strengthened, then fell. The ambivalent reaction partly reflects a deeper battle between investors who believe prices have risen far beyond levels that can be justified by underlying supply and demand fundamentals and those who believe speculative money will continue flowing into oil futures, sending prices higher regardless of the market's fundamentals.

But the magnitude of the day's price decline suggested to some analysts that the bullish momentum that pushed prices over $135 as recently as one week ago may be running out of steam.

In its weekly inventory report, the department's Energy Information Administration said crude oil inventories fell 8.8 million barrels last week, while gasoline supplies fell 3.2 million barrels. Analysts surveyed by energy research firm Platts had expected slight increases in supplies of both.

But the EIA also offered a rare explanatory note on the Gulf Coast tanker problems. Gulf ports have closed many times in recent months due to fog, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Also putting some weight on prices were supplies of distillates, including heating oil and diesel fuel, which rose 1.6 million barrels last week, double what analysts had expected. July heating oil futures plummeted 13.58 cents to settle at $3.6885 a gallon on that news.

The surprise drop in gasoline supplies propelled June gas futures to a new trading record of $3.52 a gallon on the Nymex. But gas later retreated, following the rest of the complex, to settle down 4.34 cents at $3.4042 a gallon.