Crude prices sink on supply concerns

Associated Press / January 7, 2011

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NEW YORK — Oil prices fell 2 percent yesterday, erasing more than two weeks of gains on concerns that supplies will increase in coming weeks as demand for oil and gas remains soft.

Benchmark crude for February delivery lost $1.92 to settle at $88.38 per barrel on the New York Mercantile Exchange.

Oil prices have surged for more than a month, hitting a two-year high of $92.58 per barrel earlier this week. Traders though are concerned that supplies have been growing in Cushing, Okla., the key delivery point for benchmark crude. Supplies also should rise elsewhere as refineries order more imported oil to replenish their inventories, said Andrew Lebow, senior vice president and broker at MF Global.

“Every talking head has been predicting $100 oil’’ in coming months, Lebow said. But with frigid weather expected throughout the country this month, drivers are more likely to keep their cars off the road, slowing demand for gas and oil, he said.

The winter chill, combined with a government report showing a bigger-than-expected drop in supplies sent natural gas prices sharply higher yesterday morning before they settled about 4 cents lower at $4.43 per 1,000 cubic feet.

Gasoline pump prices continued to rise. The national average yesterday was up less than a penny at $3.08 per gallon, according to AAA, Wright Express and Oil Price Information Service.