Oil falls below $61 a barrel as OPEC cuts demand forecast

The price of oil took another dive Wednesday, plunging to five-year lows amid mounting evidence that global supplies are far outstripping demand.

The Energy Department reported a surprise increase in domestic oil inventories, and the Organization of the Petroleum Exporting Countries projected that next year, demand for its crude would sink to levels not seen in more than a decade.

Benchmark U.S. crude slumped 5 percent, or $2.88, to $60.94 a barrel. Prices have not been that low since July 2009. U.S crude prices have fallen 17 percent in two weeks and are now more than 40 percent below this year’s peak of $107 in June.

Brent crude, an international benchmark used to price oil used in many U.S. refineries, fell $2.91 to $63.93 in London.

On Wall Street, stocks fell as energy shares continued to decline on the oil price slump. The Dow Jones industrial average shed 268.05 points, or 1.5 percent, to 17,533.15.

Energy analyst and trader Stephen Schork said in an interview that he expects the combination of weak economic news in Asia and growing global supplies to push oil below $60 by the end of the week. “It’s the proverbial ‘trying to catch a falling dagger’ and I’m not going to try to catch it,” he said.

OPEC said Wednesday that it expects demand for its crude to fall to 28.9 million barrels per day next year, 400,000 below the 2014 mark. The cartel’s official production target is 30 million barrels a day, which would mean far more oil on the world market than is being consumed.

Also Wednesday, the Energy Department reported a surprise increase in U.S. crude supplies of 1.5 million barrels last week. Analysts had expected a decline of 2.2 million barrels. Gasoline stocks also increased more than expected.

Oil’s drop is making for sharply lower prices for gasoline, diesel, jet fuel and heating oil and is giving consumers, shippers and airlines a lift.

Economists say lower gasoline prices act like a tax cut, leaving more money in consumers’ pockets to spend on other things. The national average price for a gallon of gasoline fell again Wednesday, to $2.64 — $1.05 less than in late June.

The Energy Department projected in a report Tuesday that gasoline will average $2.60 next year, 23 percent below this year’s projected average. If that comes to pass, it will save a typical household $550 next year.

Lower oil prices are taking their toll on oil producers, though, sending shares plummeting and forcing companies to cut spending. BP said Wednesday that it will aim to cut costs by $1 billion next year, a move likely to involve significant job cuts.

This story was originally published December 10, 2014 at 9:59 AM with the headline "Oil falls below $61 a barrel as OPEC cuts demand forecast."