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Oil plunges on supply increase


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Last Updated: July 16, 2008: 10:46 AM EDT

NEW YORK (CNNMoney.com) -- Oil prices plummeted Wednesday after the government's weekly inventory report suggested record high gasoline prices may have had on impact on the nation's consumption.

At 10:45 a.m. ET, light, sweet crude for August delivery was down $4.58 to $134.16 a barrel in electronic trading on the New York Mercantile Exchange.

Oil was down $1.17 before the report's release. Wednesday's drop followed a $6.44 plunge Tuesday that was the second largest decline ever on a dollar basis.

The government's weekly stockpile report showed that crude supplies rose by 3 million barrels in the week ended July 11. Analysts were looking for a drop of 3 million barrels according to a poll by energy research firm Platts.

Distillates, used to make diesel fuel, jet fuel and heating oil, rose by 3.2 million barrels while gasoline supplies rose by 2.4 million barrels. Analysts were looking for an increase of only 1.7 million barrels in distillates supplies and a decline of 1.1 million barrels in gasoline stockpiles.

Bernanke: The two-day retreat in oil prices reflected, in part, the gloomy economic picture being painted by Federal Reserve Chairman Ben Bernanke in his Congressional testimony.

On Tuesday, Bernanke told the Senate Banking Committee that high energy prices and slower economic growth have limited ability of U.S. households to purchase fuel and other necessities.

"People were saying that demand will not be affected by these high prices... That's proved to be wrong," said Phil Flynn, senior market analyst at Alaron Trading in Chicago.

Bernanke was to testify about the economy again Wednesday, this time to the House Financial Services Committee.

The price of gasoline and diesel fuel in the U.S. touched new records Wednesday, according to a daily survey from motorist group AAA. Gasoline is more than 35% more expensive than last year.

OPEC, Brazil: The Organization of Petroleum Exporting Countries, which supplies about 40% of the world's oil, cut its demand forecast for 2009 Tuesday to an increase of 900,000 barrels a day, 100,000 barrels less than 2008.

There were also reports that production in Brazil had not been hurt as much as originally feared by a labor strike in the Campos Basin, which supplies about 80% of the country's oil, and tensions eased with Iran, the second largest producing member of OPEC.

State-owned oil company Petroleo Brasileiro SA said production had not been affected by the ongoing strike at 33 offshore platforms that began on Monday.


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