03/14/2012 02:24 EDT | Updated 05/14/2012 05:12 EDT

Oil prices fall below US$106 a barrel after US crude supply rises

NEW YORK, N.Y. - Oil prices fell slightly Wednesday after the U.S. government reported that crude stockpiles rose last week as expected and the American currency strengthened.

Benchmark West Texas Intermediate crude, which sets the price of much of the oil produced in the U.S., fell by $1.28 to settle at US$105.43 a barrel in New York.

Brent crude, used to price oil imported by U.S. refineries, fell by $1.25 to finish at US$124.97 a barrel in London.

Oil dropped further in the afternoon as the dollar rose versus other major currencies. Oil, which is priced in dollars, tends to fall as the dollar rises and makes crude barrels more expensive for investors holding foreign money.

Besides reporting crude stockpiles rose as expected, the Energy Information Administration also noted that energy demand remains weak in the U.S., with oil demand dropping 5.4 per cent last week and wholesale gasoline demand falling 7.2 per cent compared with a year ago.

Earlier in the day, the International Energy Agency said that global oil supplies fell by 200,000 barrels a day in February, even as members of the Organization of Petroleum Exporting Countries increased production.

Government energy experts predict that global supplies will continue to fall. Tighter supplies could push oil and gasoline prices higher.

Saudi Arabia's top oil official said Wednesday that his country and other oil exporters are ready to produce more to offset any supply shortfall, if needed.

U.S. energy officials want major oil producers to immediately address the supply shortage, afraid that high prices could put the economic recovery at risk. But the Saudi oil minister said the market for now remains "generally balanced," with what he said is ample production and refining capacity.

In other energy trading, heating oil and gasoline futures both lost less than a penny to end at US$3.2618 and US$3.347 a U.S. gallon (3.79 litres), respectively.

Natural gas futures fell by 1.5 cents to end at US$2.284 per 1,000 cubic feet.