Oil prices skid to 2008 low on falling global demand; gas prices drop

NEW YORK -- Oil prices closed down Wednesday after touching their lowest level this year, pressured by a huge jump in U.S. crude inventories and more signs of dwindling demand.

Light, sweet crude for November delivery fell $1.11 to settle at $88.95 on the New York Mercantile Exchange. Oil at one point fell to $86.05 — the lowest price since Dec. 6, 2007.

Crude has now fallen about 40% since surging to an all-time record $147.27 a barrel on July 11.

In a rare dose of good news for consumers, falling oil prices are starting to weigh on pump prices. A gallon of regular fell about 3 cents overnight to a new national average of $3.447 a gallon Wednesday, according to auto club AAA, the Oil Price Information Service and Wright Express.

That's 16% lower than the all-time record average of $4.114 set July 17, but well above the year-ago average of $2.765 a gallon. Still, should oil keep sliding, analysts say pump prices could edge back below $3 a gallon sometime next month.

Crude's losses Wednesday came as U.S. energy supplies swelled, reflecting both persistently weak demand and a recovery of Gulf Coast energy output following shutdowns prompted by Hurricane Ike last month.

U.S. crude inventories jumped by 8.1 million barrels last week while gasoline stocks surged 7.2 million barrels, the Energy Information Administration said in its weekly inventory report. Both increases far exceeded expectations. Analysts surveyed by energy research firm Platts had expected a 1 million barrel drop in crude supplies and a 2 million barrel build in gasoline stocks.

Meanwhile, demand for gasoline over the four weeks ended Oct. 3 was 5.3% lower than a year earlier, averaging nearly 8.8 million barrels a day, according to the EIA report.

Oil market traders bid down the price for oil on the news, seeing the excess supplies as another sign that U.S. consumers and business are cutting back on energy use.

"There is still a lot of demand concerns in the global economy and that's going to continue translating into a struggling energy market," said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York.