Oil fell the most in five months on Wednesday as China's slowing economy raised questions about the strength of global oil demand.
Benchmark oil fell $3.75, or 4.1 percent, to $88.14 per barrel Wednesday in New York. That was the biggest decline since May 4, when oil fell $4.05 per barrel.
Data released Wednesday showed that China's services sector expanded at a slower pace in September. The report came just days after a survey indicated that the country's manufacturing sector continues to contract. Those reports, plus the ongoing financial crisis in Europe, call into question the strength of global demand for oil.
Oil demand falls
China is the world's second-largest economy and a huge importer of commodities like oil. China's crude oil imports fell to 4.3 million barrels per day in August, the weakest level since October 2010, analysts at Bank of America Merrill Lynch estimated in a report last week.
Brent crude, which is used to price international varieties of oil, fell $3.40, or 3 percent, to $108.17.
At the pump, the national average price for gasoline is down just two cents over the past week and five cents in a month. Gas prices usually show a more pronounced drop after Labor Day. Refinery outages have caused shortages of gasoline on both coasts, causing gas prices in those regions to rise. California gas prices are averaging $4.23 per gallon, up about 10 cents from a week ago.
The average price in New York, Connecticut and Pennsylvania is more than a dime higher than a month ago.
At $3.78 per gallon, the national average is the highest for this time of year and 37 cents more expensive than a year ago.
The China news overshadowed signs of improvement in U.S. service companies, which employ nearly 90 percent of the country's workforce. The Institute for Supply Management says its index rose in September at the fastest pace since March.
The U.S. government said crude inventories fell slightly last week but remain 8.4 percent above year-ago levels. Gasoline supplies also rose.
There will be further big price swings in oil this month as the market reacts to each piece of major economic news, says Jim Ritterbusch, of Ritterbusch & Associates. In a daily newsletter, he said oil could jump over the next two days on any positive surprises from the European Central Bank's policy meeting Thursday or the latest U.S. unemployment report on Friday.
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