Oil slumps as supply beats forecast

NEW YORK - Oil futures tumbled 12 percent yesterday, the most in more than seven years, after a US government report showed a bigger-than-expected increase in supplies of crude oil, gasoline, and distillate fuel as demand dropped.

Inventories of crude oil rose 6.68 million barrels to 325.4 million barrels last week, the highest since May, the Energy Department said yesterday in a weekly report. Supplies were forecast to increase by 800,000 barrels, according to the median of forecasts by 14 analysts in a Bloomberg News survey.

Crude oil for February delivery fell $5.84 to $42.74 a barrel on the New York Mercantile Exchange. Prices are heading for the biggest one-day decline since Sept. 24, 2001. Futures are down 55 percent from a year ago.

Inventories at Cushing, Okla., where oil that's traded on Nymex is stored, climbed 14 percent to 32.2 million barrels last week, the highest since at least April 2004, when the department began keeping track of supplies there.

The price of oil for delivery next December is 34 percent more than for February, increasing the opportunity for traders to profit.

This price structure, in which the subsequent month's price is higher than the one before it, is known as contango. Contango trading encourages companies to increase stockpiles if they have available storage.

Gasoline inventories rose 3.33 million barrels to 211.4 million barrels, the department said. Supplies were forecast to increase by 1 million barrels.

Distillate supplies, which include heating oil, and diesel, climbed 1.79 million barrels to 137.8 million barrels.