Oil prices tumbled below US$67 a barrel to 16-month lows Wednesday after the government reported big increases in United States fuel stockpiles - more evidence that the economic downturn is drying up energy demand.

The Energy Information Administration said crude inventories jumped by 3.2 million barrels last week, above the 2.9 million barrel increase expected by analysts surveyed by energy research firm Platts.

Gasolene inventories rose by 2.7 million barrels last week, and inventories of distillates, which include heating oil and diesel, rose by 2.2 million barrels.

Motor gasolene

Over the last four weeks, the EIA said, motor gasolene demand was down 4.3 per cent from the same period last year.

Distillate fuel demand was down 5.8 per cent, and jet fuel demand was down 9.2 per cent.

Light, sweet crude for December delivery fell $5.43 to settle at US$66.75 a barrel on the New York Mercantile Exchange, after falling as low as US$66.20.

It was the lowest close for a front-month contract since June 13, 2007, when crude settled at US$66.26.

On London's ICE futures exchange, Brent crude fell $5.20 to US$64.52 a barrel.

"The main theme here that's driving this market into new low ground is demand deterioration," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"As we begin to see evidence that demand is levelling - it doesn't have to increase, just level - then we can start discussing a possible price bottom. But it appears premature at this point."

The energy markets have also been weighed down by the weak stock market, as investors grow more pessimistic about how long it will take the economy to recover from the current global financial turmoil.

More gloomy reports

The Dow was down another 5.7 per cent on Wednesday following more gloomy reports from the soon-to-be acquired bank Wachovia Corp, drugmaker Merck & Co, and insurer Travelers Cos.

According to preliminary calculations, the Dow fell 514.45, or 5.69 percent, to 8,519.21, after being down as much as 698 points in the final half hour of trading.

Broader stock indicators also fell Wednesday. The Standard & Poor's 500 index fell 58.27, or 6.1 per cent, to 896.78, and the Nasdaq composite index fell 80.93, or 4.8 per cent, to 1,615.75.

- AP

Dow drops 514 points

The price of crude oil has tumbled 55 per cent from its peak of US$147.27 reached in mid-July.