Oil drops almost 5% as supplies unexpectedly grow

Crude oil pricesplunged anew on Wednesday, taking the loonie along for the ride, following the release of U.S. inventory figures that showed oil supplies building at a time when the market was expecting drawdowns.

Crude for January delivery closed down $1.83, or 4.9 per cent,to $35.52US a barrel. The drop followed news from the U.S. Energy Administration that crude oil supplies in the U.S. rose by 4.8 million barrels last week. Analysts had been expecting supplies to drop by 1.5 million barrels.

Oil had already been trending lower after another supply report this one from the American Petroleum Instituteshowed asimilar and unexpected rise in U.S.crude stockpiles.

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Prices hit multi-year lows on Monday near $35 US a barrel as the supplyof oil continued to outpace demand and the global economy showed new signs of weakness. Prices moved higher on Tuesday butreversed course Wednesday once the new supply figureswere released.

Loonie at 11-year low

The beleaguered Canadian dollar took another hit fromthe new fall inoil prices. The loonielost a quarter of a cent to close at72.54cents US. That's its lowest level since May 2004.

At official exchange rates, that pushes the cost of a U.S. dollar to almost$1.38Cdn. But the actualcost ofbuying U.S. currency at your neighbourhood bank will be more than $1.40 for eachU.S. dollar.

Lower crude prices weren't the only thing pressuring the loonie. The U.S. dollar gained against a broad basket of currencies asthe Federal Reserve, as expected,raisedits key overnight lending rate Wednesday afternoon by a quarter of a percentage point the first increase in almost 10 years.

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Other commodities also fell Wednesday. The price of natural gas hit a new 16-year low, dropping 3.2cents to $1.79US per million British thermal units.Mildweather in many parts of the U.S. is limiting gas consumption.

Canadians who heat their homes with gas stand to benefit from the recent price drop. Enbridge Gas in Ontario, for instance, has applied to lower gas rates in the new year. If approved, consumerswill likely see theirgas billsdrop by about five per centas of Jan. 1.