Gasoline market sell-off drags crude oil price lower

Oil prices fell 2.5% to below $70 a barrel yesterday, pulled lower by a sell-off in the gasoline market as dealers bet there would ample fuel supply in the United States to meet demand from summer vacationers.

US crude fell $1.82 to settle at $69.55 a barrel. Gasoline futures fell 10.51 cents, or 5.18%, to $1.9244 a gallon. Brent crude fell $1.87 to settle at $69.19 a barrel.

"Gasoline is under siege here, with the supply build after production rose last week," said Andy Lebow, broker at MF Global in New York.

US gasoline supplies rose unexpectedly last week as refiners boosted output to prepare for an expected seasonal uptick in demand, according to government data issued on Wednesday.

Experts have been mixed on how strong consumption for the motor fuel will be this summer as the effects of the recession counter-balance relatively low prices at the pumps.

The US Transportation Department said yesterday, Americans drove more miles in April than they did a year earlier, marking the first monthly rise in US highway travel in more than a year.

Oil prices had been in positive territory earlier in the day as rebel attacks in Nigeria hit output from the Opec-member country and economic optimism propelled equities markets higher.

Nigeria's main militant group Mend said it had attacked a pipeline operated by Italy's Agip, close on the heels of previous attacks on facilities operated by Royal Dutch Shell and Chevron. Together, the attacks have cut at least 133,000 barrels of daily output.

Rebels in Nigeria, the world's seventh-largest oil exporter, have been carrying out attacks on the oil industry for years in what they claim is a struggle aimed at spreading the region's energy wealth to the poor local communities.

Oil prices also got some support from political turmoil in Iran, the world's fifth- largest exporter, in the wake of its presidential election.

"We will see support continue to come from Iran and Nigeria. There is no immediate supply threat from Iran, but in Nigeria, (there) is an actual physical disruption," oil analyst Olivier Jakob of Petromatrix said.

Oil prices have nearly doubled since February on signs of a potential economic recovery but the pace of the rally has sparked concerns prices are not well supported by fundamentals.