VINACHEM

Futures in New York declined 2.7 percent after thedepartment said supplies rose 2.86 million barrels to 387.3million last week, the highest level since July 1990. Thedecline accelerated after Federal Reserve policy makers loweredtheir outlook for growth and employment.

“We are down because inventories were plentiful evenbefore today’s report,” said Todd Horwitz, chief strategist atAdam Mesh Trading Group in Chicago. “We will probably take out$80 in the next couple weeks.”

Crude oil for July delivery fell $2.23 to $81.80 a barrelon the New York Mercantile Exchange, the lowest settlement sinceOct. 5. Prices are down 17 percent this year. The July contractexpired today. The more actively traded August contract dropped$2.90, or 3.4 percent, to $81.45.

Brent oil for August declined $3.07, or 3.2 percent, to$92.69 a barrel on the London-based ICE Futures Europe exchange,the lowest settlement since Dec. 17, 2010.

The increase in stockpiles was the first in three weeks.The median estimate of 11 analysts surveyed by Bloomberg was adecline of 1.3 million barrels.

Surging Output

U.S. crude production climbed 117,000 barrels a day to 6.35million in the week ended June 15, the highest level sinceFebruary 1999, the report showed. Crude imports increased328,000 barrels a day to 9.45 million last week, the highestlevel since March.

Total fuel demand dropped 4.2 percent to an average 18.6million barrels a day, the biggest decrease since March.Gasoline and distillate inventories both advanced.

Fed officials lowered their central tendency estimate forU.S. 2012 gross domestic product growth to 1.9 percent to 2.4percent from 2.4 percent to 2.9 percent in April. They forecastthe jobless rate will average 8 percent to 8.2 percent in thefourth quarter of 2012, up from a previous estimate of 7.8percent to 8 percent.

The Fed said it will expand the Operation Twist stimulusprogram by $267 billion through the end of the year. InOperation Twist, the central bank sells short-term securitiesand buys the same amount of longer-term debt to lengthen theaverage maturity of its holdings and keep borrowing costs low.

“The Fed is in the driver’s seat,” said David McAlvany,chief executive officer of McAlvany Financial Group in Durango, Colorado. “Hedge funds have been selling futures because theyaren’t getting enough liquidity from the Fed.”

Quarterly Decline

Crude in New York has dropped 21 percent in the secondquarter as Europe’s financial woes have raised concern about theregion’s economic recovery and future energy demand. Brent crudehas fallen 25 percent in the quarter.

Spain is scheduled to sell debt tomorrow maturing in 2014,2015 and 2017. Yields on the nation’s 10-year government debtincreased to 7.29 percent on June 18, the highest level sincethe euro was introduced in 1999. Yields remain above the 7percent level that pushed Greece, Ireland and Portuagal to seekrescue packages.

“Until the situation in Europe stabilizes, the oil marketwill trend lower,” said Chip Hodge, who oversees a $9 billionnatural-resource bond portfolio as senior managing director atManulife Asset Management in Boston. “How long it will take toshake out is anyone’s guess. There’s no easy fix.”

European Summit

German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy will gather June 22 in Rome. The meeting is tohelp prepare for a June 28-29 European Union summit in Brusselsat which leaders will discuss the path to further financialintegration, including proposals for closer banking cooperation.

“The Europeans appear to be headed for further economicand financial integration,” said Bill O’Grady, chief marketstrategist at Confluence Investment Management in St.Louis,which oversees $1.3 billion. “It will take time.”

Merkel declined to commit to directing sovereign debtpurchases through the euro-area bailout fund, pushing back oncalls by euro-region leaders who backed the measure as a way toease the crisis. Yesterday, Hollande championed the idea ofusing the European Stability Mechanism to purchase indebtedcountries’ bonds as a way to counter rising yields.

Futures climbed 0.4 percent early in the session after Iranand world powers failed to reach a breakthrough after two daysof talks in Moscow aimed at alleviating the threat of militaryaction against the second-biggest oil producer in theOrganization of Petroleum Exporting Countries.

“All eyes are on Europe and the global economy,” saidFred Rigolini, vice president of Paramount Options Inc. in New York. “I don’t think many people are worried about Iran.”

Electronic trading volume on the Nymex was 708,558contracts as of 3:23 p.m. in New York. Volume totaled 554,402contracts yesterday, versus the three-month average of 553,000.Open interest was 1.43 million.