Oil falls to three-month low

Oil dropped to a three-month low under $118 a barrel yesterday as rising US crude inventories heightened concerns of a demand slowdown in the world's top consumer.

US light crude traded down $1.69 at $117.48 a barrel by 12:41 p.m. EDT (1641 GMT) after hitting $117.11, the lowest level since early May and $30 off the record $147.27 a barrel struck on July 11.

London Brent crude fell $1.03 to $116.67 a barrel.

Crude oil stocks rose by 1.7 million barrels in the week to August 1, according to data from the US Energy Information Administration (EIA), well above analysts' forecasts for a 300,000-barrel build. EIA/S] Stocks of distillate fuels, including heating oil and diesel, rose by 2.8 million barrels, also above forecasts, while gasoline inventories fell by a steep 4.4 million barrels against forecasts of a 1.2 million barrels drop.

"The EIA data showing big increase in crude stocks are bearish, but the gasoline numbers showing a much larger than expected draw is certainly bullish," said Phil Flynn, analyst for Alaron Trading in Chicago. "But data also show that gasoline supply was down due to a decline in imports."

US energy stockpiles have been climbing in recent weeks amid mounting evidence that surging pump prices and an economic slowdown are hitting fuel consumption.

"The next support area is $117. If we break through $117 we are probably not going to be able to create any upward momentum in the market," said Rob Kurzatkowski, futures analyst at optionsXpress in Chicago.

Crude's losses were tempered somewhat by news of an explosion on the Baku-Tbilisi-Ceyhan oil pipeline in eastern Turkey late on Tuesday that halted oil flows along the key pipeline.