Oil slips below $68 after weeklong rally

SIOUX FALLS, S.D. — Oil prices slipped below $68 a barrel Wednesday before the government reported how much unused crude, now near 19-year highs, remains in storage.

Benchmark crude for July delivery dropped 75 cents to $67.75 a barrel on the New York Mercantile Exchange. The contract on Tuesday slipped 3 cents to settle at $68.55.

Crude and gasoline prices began to rise rapidly at the start of May. While some of that is normal at this time of year, there have been questions about whether market fundamentals support the pace of soaring prices.

“As much as people want to say that the energy markets are ignoring the supply and demand data I think that today’s EIA data may be critical as to whether or not oil continues its incredible strength or whether it takes a well deserved rest and correction,” Phil Flynn, an analyst at Alaron Trading Corp., said in his morning report.

The American Petroleum Institute in an overnight report noted a crude draw of about 830,000 barrels, which is less than many analysts were expecting the government to report Wednesday.

The U.S. Energy Department’s Energy Information Administration is expected to report crude storage levels fell 2 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos. Stocks dropped last week for a third straight week after rising for the previous 10 weeks.

That would typically mean that prices for oil, and to some extent prices at the pump, would be falling.

But oil prices have doubled since March with some signs that the worst of the recession may be over.

All of the government spending to turn the economy around, however, is another reason why energy prices might be rising.

There are concerns that the massive U.S. stimulus package will spark inflation and undermine the dollar, which hit a new low for the year against the euro Tuesday. Investors typically invest in commodities to protect themselves against the risks of inflation caused by a weaker dollar.

In other Nymex trading, gasoline for June delivery slipped by nearly a cent to $1.9157 a gallon and heating oil fell by 2.93 cents to $1.7686 a gallon. Natural gas for June delivery fell 14 cents to $3.978 per 1,000 cubic feet.

In London, Brent prices lost 32 cents to $67.85 a barrel on the ICE Futures exchange.

Associated Press Writers Alex Kennedy in Singapore and George Jahn in Vienna contributed to this report.