Oil: Price drops as US crude piles up

LONDON - Oil dropped on Wednesday after US data showed crude and petrol piling up in storage tanks and consumers cutting down on fuel use.

Adding pressure to prices, Hurricane Wilma appeared to steer away from vulnerable rigs and refineries in the Gulf of Mexico.

US crude ended down 90 cents to US$62.30, after losses of US$1.16 on Tuesday. London Brent crude was off 79 cents at US$58.49.

Prices reversed slim gains after weekly US government data showed crude stocks rising by 5.6 million barrels, sharply up on a forecast build of 2 million barrels.

Petrol rose by nearly 3 million barrels against expectations of a 1.2 million barrel draw, though distillates, which include heating oil, declined by 1.9 million barrels -- nearly matching expectations.

Adding to the bearish impact of the stocks data, the US goverment's Energy Information Administration provided the latest evidence that high prices have eroded demand.

It said demand for oil product was down 3.2 per cent from a year ago.

Analysts said Wednesday's data were very bearish. But they said the full impact on inventory levels from hurricanes Katrina and Rita that struck oil infrastructure in August and September had yet to be seen.

"We're still dealing with trying to guess what the hurricanes' impact was on oil facilities," said Bill O'Grady of A.G. Edwards in St. Louis.

"Normally we base our forecasts on seasonal patterns, now seasonal patterns are disrupted." US refineries are gradually resuming normal operations after the storms. Five plants were still shut along with two thirds of Gulf of Mexico oil output.

Adding to the build-up in crude stocks as refineries stay idled, Opec has been pumping at near full tilt.

The cartel expects to boost its production capacity to 38 million bpd by 2010 from 32.5 million bpd this year, its acting Secretary General Adnan Shihab Eldin said.

Tensions with Opec's second biggest producer Iran mounted. Diplomatic and industry sources said Iran was blocking British and South Korean goods in an apparent attempt to force the two to drop their opposition to Tehran's nuclear programme.

Oil and gas exports have not been affected.

- REUTERS