Oil's 2-day decline: more than $10 a barrel

NEW YORK (CNNMoney.com) -- Oil prices plummeted Wednesday, bringing the two-day selloff to $10.58 a barrel, on reports indicating that demand for oil and gas may slacken in the future.

The government's weekly inventory report suggested that record high gasoline prices may be reducing the nation's energy consumption, and OPEC released a report on Tuesday indicating that global demand for 2009 would be less than it was in 2008.

Light sweet crude oil for August delivery settled down $4.14 to close at $134.60 a barrel on Wednesday on the New York Mercantile Exchange.

Wednesday's drop followed a $6.44 plunge Tuesday that was the second largest decline ever on a dollar basis.

Government supply report: The government's weekly stockpile report showed that crude supplies rose by 3 million barrels in the week ended July 11. Analysts were looking for a drop of 3 million barrels according to a poll by energy research firm Platts.

Gasoline supplies rose by 2.4 million barrels, rather than the 1.1 million decline analysts expected.

Distillates, used to make diesel fuel, jet fuel and heating oil, rose by 3.2 million barrels. Analysts were looking for an increase of only 1.7 million barrels.

"That, coupled with the general malaise that's out there with the economic outlook, sets us up with a potential cracking of these oil prices," said John Kilduff, energy analyst with MF Global.

Bernanke: The two-day oil selloff follows the gloomy economic picture being painted by Federal Reserve Chairman Ben Bernanke in his Congressional testimony.

On Tuesday, Bernanke told the Senate Banking Committee that high energy prices and slower economic growth have limited ability of U.S. households to purchase fuel and other necessities.

Bernanke also appeared Wednesday before the House Financial Services Committee, saying that inflation was "likely to move temporarily higher in the near term."

The price of gasoline and diesel fuel in the United States touched new records Wednesday, according to a daily survey from motorist group AAA. Gasoline is more than 35% more expensive than last year.

"The weaker economic outlook, the inventory build, all contribute," said Amanda Kurzendoerfer, commodities analyst with Summit Energy. However she warned that long-term investors may see the price decline as a buying opportunity.

"The one thing we can be sure of is that we're looking at a lot of volatility going forward," she said.

OPEC, Brazil: The Organization of Petroleum Exporting Countries, which supplies about 40% of the world's oil, cut its demand forecast for 2009 Tuesday to an increase of 900,000 barrels a day, 100,000 barrels less than 2008.

There were also reports that production in Brazil had not been hurt as much as originally feared by a labor strike in the Campos Basin, which supplies about 80% of the country's oil, and tensions eased with Iran, the second largest producing member of OPEC.

State-owned oil company Petroleo Brasileiro SA said production had not been affected by the ongoing strike at 33 offshore platforms that began on Monday.

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