01/05/2012 04:44 EST | Updated 03/05/2012 05:12 EST

Oil hovers below US$103 in Asia after supply report shows mixed signs about US crude demand

NEW YORK, N.Y. - Oil and natural gas prices dropped Thursday after the government said the U.S. ended 2011 with little need for more fuel.

Government petroleum data continue to be at odds with jobs, consumer spending and other economic data that point to a strengthening economy. While there are fewer layoffs and shoppers may have spent more over the holidays, the nation's consumption of energy has been moderate at best.

For one thing, Americans are driving more efficient cars, but that doesn't explain why demand is so low, analysts said. As of Dec. 30, oil demand in the U.S. fell by seven per cent from the same time last year. Gasoline demand fell by five per cent. And demand for oils used to make asphalt, kerosene and other miscellaneous petroleum products declined by 26 per cent.

"It's hard to square these numbers with each other," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. The jobs and retail sales numbers painted a picture of an economy on the mend. Yet weak energy demand "points to a fatigued, beleaguered consumer."

Benchmark crude fell by US$1.41 to end the day at $101.81 per barrel in New York. Brent crude fell 96 cents to finish at $112.74 a barrel in London.

The Energy Department's Energy Information Administration said Thursday that U.S. oil supplies grew by 2.2 million barrels last week. Analysts expected them to shrink by 450,000 barrels, according to a survey by Platts, the energy-information arm of McGraw-Hill Cos. Gasoline, jet fuel and distillate supplies also increased by 2.5 million barrels.

Oil refineries have slowed operations compared with a year ago, as fuel demand fell. The refining industry is set to report a miserable fourth quarter. Sliding gasoline prices made the refining business unprofitable in many parts of the country. Gasoline pump prices in the U.S. have dropped almost 67 cents per gallon since a high near $4 a gallon in May. The U.S. average of $3.32 per gallon is still at the highest ever for this time of year.

Tesoro Corp., which operates refineries in the Western U.S., said Thursday it expects to report a loss in the final three months of 2011 due to deteriorating refining margins.

"That's the biggest paradox," independent analyst and trader Stephen Schork said. "Refiners are the only ones that are really buying oil. If they can't make money, then why is the value of crude so high?"

U.S. natural gas supplies shrank by 76 billion cubic feet last week, but the overall supply remains more than 15 per cent above the five-year average for this time of year. Natural gas finished down 12 cents, or 3.8 per cent, at $2.98 per 1,000 cubic feet.

In other energy trading, heating oil lost five cents to end the day at $3.04 per gallon and gasoline futures fell by five cents to finish at $2.74 a gallon.