What prices are doing: After a brief upswing above $80 last week, oil once again traded in the high $70s -- where it has stayed the last three months -- as investors look to negative economic data as signs of a slowdown that could curb demand for fuel.
Crude for September delivery fell $2.23, or 2.8%, settling at $78.02 Wednesday.
Signs of weakness hit oil: On Wednesday, China reported its lowest industrial output numbers and its highest level of inflation in nearly a year. The country also reported a monthly decline in retail sales.
The data supports fears of a global economic slowdown and comes just one day after a separate gloomy report from China. On Tuesday, the country said its trade surplus ballooned to an 18-month high of $28.7 billion in July as slowing economic growth pressured imports.
Meanwhile, investors are still mulling over the Federal Reserve's announcement on Tuesday that it will buy additional long-term Treasurys as a way of stimulating the sputtering U.S. recovery. The central bank's statement that the recovery will be "more modest" than previously expected marked its most bearish stance in about a year.
The dollar strengthened against the euro and pound on the news because of its safe-haven appeal. That sent oil lower, because oil is priced in dollars like other commodities, so a stronger greenback lowers its price.
Supply and demand: On the other side of the equation -- the latest demand forecasts would actually seem to support a price increase for oil -- but that data has taken a backseat to concerns about the economy.
Both the International Energy Agency, which advises 28 i
ndustrialized countries, and the U.S. Energy Information Administration recently upwardly revised their forecasts for world crude demand. But at the same time, IEA also warned that a weaker economic recovery could cut global demand.
Meanwhile, U.S. supply trends last week were mixed.
0:00 /2:37Nigeria's illegal oil refineriesCrude supplies fell by 3 million barrels in the week ending August 6, the government said Wednesday. That's a greater dip than the 2.4 million fall analysts surveyed by research firm Platts had expected.
But gasoline inventories increased by 400,000 barrels, whereas analysts had expected a drop of 1.5 million barrels. Distillates, a category that includes heating oil and diesel, increased by 3.5 million barrels -- far more than the 1.1 million barrel increase analysts forecasted for the week.
Hurricanes: August marks the middle of hurricane season, and oil traders are watching for any brewing tropical storms that could cut U.S. oil production and drive prices up.
The Atlantic Basin remains on track for an active hurricane season -- which runs June 1 to November 3 -- the National Oceanic and Atmospheric Administration said on Thursday.
But so far, "more people seemed depressed about the economy than caring about hurricanes," Phil Flynn, a senior market analyst with PFG Best, said in a note to investors Wednesday.