Oil prices fall, but gasoline rises

Associated Press / December 31, 2010

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NEW YORK — Energy prices dropped after the government said oil and natural gas supplies fell less than expected last week.

Benchmark crude for February delivery lost $1.28 to settle at $89.84 per barrel. It was the first time in more than a week that oil settled below $90.

Oil has surged for most of December as US petroleum consumption ticked higher and traders looked to 2011, when oil is expected to touch $100 per barrel and perhaps go higher.

Rising oil prices have pushed gasoline pump prices higher. They were up again yesterday; the national average for a gallon of regular hit $3.07, about 6 cents higher than a week ago and 45 cents more than a year ago.

Some analysts expect $3.75 by spring.

The price of benchmark crude tumbled yesterday after the Energy Department’s Energy Information Administration said oil supplies declined by 1.3 million barrels last week. A drop in supplies often supports higher prices, but analysts surveyed by Platts thought the drop would be bigger — around 3.2 million barrels.

Investors worried that the report showed demand for energy was not continuing to pick up, despite positive economic news. The Labor Department said the number of people applying for unemployment benefits fell to 388,000, the lowest level in almost 2 1/2 years.

Natural gas supplies shrank by 136 billion cubic feet. That’s less than analysts expected and a relatively small dent in total supplies of more than 3.2 trillion cubic feet, 8 percent above the five-year average.