Oil hangs below $78 amid demand doubts

Oil prices hung below $78 a barrel Thursday as an unexpected jump in U.S. gasoline supplies cast doubt on the strength of a recovery in crude demand.

By midday in Europe, benchmark crude for December delivery was up 38 cents to $77.84 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.09 to settle at $77.46 on Wednesday.

“It appears that market participants have come out of self-denial and realized that the build in crude prices is not founded on solid fundamentals,” said JBC Energy in Vienna, forecasting that the market was in a “downward correction phase and should continue moving toward the $70 per barrel mark.”

The Energy Information Administration said Wednesday that gasoline stocks rose 1.7 million barrels last week while analysts had expected a fall of 1 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Crude supplies rose 900,000 barrels last week, the EIA said.

“The bearish EIA report featured some unusually negative gasoline figures,” Galena, Ill.-based consultancy Ritterbusch and Associates said in a report. “We feel that further price declines will be forthcoming.”

Since last week, crude has retreated from $82 a barrel, the high for 2009, as the U.S. dollar gained back some of its losses from recent months. Because commodities are priced in dollars, they become more expensive — and less attractive — to international investors when the U.S. currency rises.

The euro rose to $1.4727 on Thursday from $1.4714 while the dollar gained to 90.70 yen from 90.64.

In other Nymex trading, heating oil rose 0.75 cent to $2.0044 a gallon. Gasoline for November delivery added 0.9 cent to $1.9873 a gallon.

In London, Brent crude for December delivery rose 44 cents to $76.30 on the ICE Futures exchange.

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Associated Press writer Alex Kennedy in Singapore contributed to this report.