The prolonged drop could lead to lower gasoline prices for U.S. drivers in the weeks ahead.
In the Middle East, the insurgency in Iraq is far from resolved, but hasn't halted oil exports. The fighting now seems unlikely to spread to Iraq's major oil fields. Tensions between Israel and Hamas have escalated in the past week, but aren't threatening any major oil production.
On the supply side, Libyan crude exports appear poised to surge after an agreement between the government and local militias cleared the way for export terminals to open. And U.S. production continues to soar.
At the same time, refiners have already made much of the gasoline needed to fuel road trips for summer vacationers, so crude demand will begin to ebb over the next couple of months. Meanwhile, the nation's oil supply as of July 4 was 382.6 million barrels, up 2.3 percent from this time a year ago.
"We in the U.S are sitting on a ton of crude oil," says energy analyst Stephen Schork of the Schork Group. "We're at the point in the season we have a lot of supply and demand is about to fall."
U.S. benchmark crude fell $1.11 Wednesday to close at $102.29 in New York. That's slightly lower than the price on June 6, before insurgents seized the Iraqi city of Mosul, and 5 percent below the ten-month high of $107.26 reached June 20 at the height of concerns over the insurgency. Schork expects to see oil fall further, to under $100 per barrel, in the coming weeks.
Brent crude, a benchmark for international oils used by many U.S. refineries, fell 59 cents to $108.47 in London.
The violence in Iraq led to an increase in U.S. retail gasoline prices between Memorial Day and July 4, a time when they usually fall. That is now starting to reverse.
The national average price of a gallon of gasoline is $3.65, according to AAA, OPIS and Wright Express. That's 3 cents cheaper than the June high of $3.68 per gallon and experts forecast the pace of declines will pick up.
Patrick DeHann, senior petroleum analyst at GasBuddy.com, predicts a drop of 10 to 20 cents per gallon in many U.S. regions over the next two weeks.
On Wednesday, the Energy Department reported that U.S. crude oil supplies fell by 2.4 million barrels last week as refiners ramped up production, but it was less than the 3 million barrel decline that analysts had expected. Supplies are above the upper limit of their average for this time of year. Gasoline supplies rose, and demand for gasoline fell slightly compared with the same period last year.
A day earlier, the Energy Department increased its estimate for U.S. crude production for this year and next year. The nation is now expected to produce 9.3 million barrels of oil per day in 2015. That would make for an 86 percent increase since 2008 and the highest level since 1972.
But it is the prospect of a sudden return of Libyan oil to the global market that has sent prices lower this week. Libyan exports have been all but cut off over the last several months because of labor and political strife that has shut ports and disrupted production. Agreements with local militias are now expected to open two ports, and a major field restarted production Tuesday.
Because oil has been piling up in tanks at the closed ports, shipments could ramp up extremely quickly, analysts said.
In other energy futures trading on Nymex:
— Wholesale gasoline fell 3.5 cents to close at $2.938 a gallon.
— Natural gas fell 3.4 cents to close at $4.17 per 1,000 cubic feet.
— Heating oil fell 0.3 cent to close at $2.871 a gallon.
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