Oil drops below $76 as crude supplies grow

Oil prices fell below $76 a barrel Wednesday after a report showed U.S. crude supplies jumped last week, suggesting demand remains tepid, and a key U.S. pipeline shut for repairs seemed close to reopening.

By early afternoon in Europe, benchmark crude for October delivery was down $1.11 at $75.69 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 39 cents to settle at $76.80 on Tuesday.

The American Petroleum Institute said late Tuesday that crude inventories rose 3.3 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast a drop of 2.25 million barrels. Inventories of gasoline and distillates fell, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

Some analysts expect record crude inventories to weigh on oil prices as demand remains weak in developed countries. National Australia Bank lowered its forecast for crude prices to an average of $82 a barrel in the fourth quarter from $84.

"While growth in crude oil demand continues to languish in many developed economies, world oil production remains robust," NAB said in a report. "The situation has continued to create abundant global oil supply, especially in those countries where economic activity remains most listless."

Oil prices also seemed to be close to losing support from the shutdown of pipelines in the United States, including one outside Chicago owned by Enbridge Inc. that supplies Canadian crude to Midwest refiners, after repairs were needed to fix leaks.

"The latest statements from Enbridge and local officials indicate that the line will be restarted earlier than priced by the market and we will now not exclude a weekend surprise on the resumption of flows," said Olivier Jakob of Petromatrix in Switzerland.

On Tuesday, Enbridge restarted a 91-mile pipeline that runs from Ontario, Canada, to New York that was shut down a day earlier to investigate a possible low-level leak near Buffalo, N.Y. Enbridge said tests found no leak but that the site would be monitored.

Analysts looking at technical aspects of oil trading said the Nymex contract's inability to break above $78 a barrel in recent days possibly pointed to further slips.

"This can be interpreted as a signal of an imminent downward movement, which could take oil prices back toward the lower end of the multi-month trading range of $70 to $80," said a report from Commerzbank in Frankfurt.

In other Nymex trading in October contracts, heating oil was down 1.43 cents at $2.1145 a gallon and gasoline fell 1.87 cents to $1.9503 a gallon. Natural gas dropped 3.3 cents to $3.933 per 1,000 cubic feet.

In London, Brent crude fell 59 cents to $78.57 a barrel on the ICE Futures exchange.