LONDON, Sept 4: Oil fell by more than $2 on Thursday as concerns over weak demand outweighed an unexpected drop in US crude oil inventories.

US crude fell $2.08 to $107.25 a barrel by 1536 GMT, reversing an earlier gain of about $1. London Brent crude fell $2.33 to $105.73.

US government inventory data showed total demand for oil products, such as gasoline and distillates, over the past four weeks fell 3.5 per cent from a year ago.

Crude oil inventories fell 1.9 million barrels, compared with a forecast of a 200,000 barrel increase ahead of the release of the data. But inventories at Cushing, the delivery point for US crude, increased.

Inventories of gasoline decreased by 1.0 million barrels.

“Demand is still pretty weak,” said Simon Wardell of Global Insight. “We are seeing much more supply and I think demand is going to take precedence at the moment.”

Hurricane Gustav this week did not cause much physical damage to oil production facilities in the Gulf region, home to a quarter of US crude output, but 11 refineries on the coast remained shut.

Entergy Corp, Louisiana’s largest utility, said earlier this week that the worst damage was in the New Orleans-Baton Rouge area, home to some of the biggest US plants, including Exxon Mobil’s giant Baton Rouge facility.

Entergy said on Wednesday the full recovery of its power grid might be weeks away, while the company was restoring some power supply.

Hurricane Ike strengthened into an extremely dangerous Category 4 hurricane in the open Atlantic on Wednesday although it posed no immediate threat to land. Tropical Storm Hanna intensified to a lesser degree as it swirled over the Bahamas toward the southeast US Coast.

Traders are awaiting Opec’s Sept 9 meeting. Analyst PFC said a consensus was building within Opec to cut output to support prices and prevent a supply overhang from developing.

Iran has said the producer group may need to cut oil supplies by as much as 1.5 million barrels per day (bpd), nearly five per cent, to balance global markets by early next year

.—Reuters