OIL dropped below US$110 per barrel yesterday after a government report showed that supplies of petroleum products are growing as demand weakens in the US.

Industry reports on the job market and the service sector also raised concerns about the health of the US economy.

Benchmark crude for June delivery lost US$1.81 to settle at US$109.24 per barrel on the New York Mercantile Exchange. In London, Brent gave up US$1.26 to settle at US$121.19 per barrel on the ICE Futures exchange.

Prices fell shortly after the Energy Information Administration said that oil supplies increased by 3.4 million barrels last week – twice as much as energy analysts expected. The government also reported that gasoline demand averaged 9.1 million barrels per day, down almost 2 percent from a year ago.

Crude has been climbing over the past few months as unrest in North Africa and the Middle East raised concerns about oil supplies and a weaker US dollar made crude cheaper for investors holding foreign money.

Still, economists warned that higher energy prices were taking a toll on the economy, and recent government and industry surveys suggest that American drivers are buying less fuel.

In its weekly report, MasterCard SpendingPulse said the four-week average of gasoline purchases in the US dropped for the sixth consecutive week, compared with a year ago. EIA said the four-week average of wholesale gasoline demand also dropped for the sixth straight week.

So far the drop in consumption hasn’t kept pump prices from rising. Gasoline has increased for 43 days straight, hitting a national average of US$3.982 per gallon (3.79 liters) yesterday, according to AAA, Wright Express and Oil Price Information Service. Pump prices have risen 91 cents per gallon since the beginning of the year. A gallon of regular now costs more than US$4 in 13 states and Washington, D.C.

Lackluster economic news also helped push oil prices down yesterday. The Institute for Supply Management said its service sector index rose at the slowest pace in 8 months in April, as many companies expressed concerns about higher food and gas prices. Private payroll processor ADP also raised worries about the health of the jobs market when it reported that 179,000 new private sector jobs were added in April, far fewer than economists expected.

In other Nymex trading for June contracts, heating oil lost 4.78 cents to settle at US$3.143 per gallon and gasoline futures fell less than a penny to settle at US$3.3225 per gallon. Natural gas gave up 9.4 cents to settle at US$4.644 per 1,000 cubic feet (28.32 cubic meters).

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A concept bicycle is displayed at the 21st China International Bicycle and Motor Fair, which opened yesterday at the Shanghai New International Expo Center. The four-day event, also known as China Cycle 2011, has attracted 1,200 exhibitors to attend.

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CHINA’S roaring economy will slow a touch this year, with inflation staying stubbornly above the government’s 4 percent target, arguing for monetary policy to tighten further, a Reuters poll showed yesterday.

The median forecast of 19 analysts surveyed showed the Chinese economy could grow 9.5 percent in 2011, slowing slightly from last year’s 10.3 percent expansion.

In the second quarter, the world’s second-biggest economy is predicted to grow 9.4 percent, a shade below the 9.7 percent seen in the first three months of this year.

“We expect the Chinese economy to continue with trend-growth pace in the coming quarters,” JPMorgan said in a research note.

“Solid overall employment growth and broad-based wage gains should be supportive of steady overall consumer demand growth later this year.”

Solid and steady economic growth is likely to sustain price pressures, however. Inflation for the year is seen accelerating to 4.5 percent, picking up from the 3.3 percent in 2010, before pulling back to 3.9 percent in 2012.

“Inflation is going to be fairly sticky, and it’s only going to be a slow decline,” said Glenn Maguire, an economist at Societe Generale in Hong Kong. “We would suggest that the official forecast is a little bit overly optimistic at this stage.”

He expects China’s inflation for 2011 to hit 5.5 percent.

Economists expect China to use a range of levers in coming months to control prices: interest rates, the reserve requirement ratio, and the yuan.

China has raised interest rates four times and banks’ reserve requirements seven times since October.

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