Oil: Price falls after US supply rise

NEW YORK - Oil prices fell nearly 2 per cent on Wednesday after US crude supply rose while distillate fuel's slip in inventory was within market expectations.

US light crude fell as much as 3.5 per cent, to a low of US$47.90 per barrel before bouncing back to end at US$48.78 a barrel.

London Brent fell 45 cents at US$46.51 a barrel, after hitting a three-month peak at US$47 earlier and striking a low for the day at US$45.60.

US commercial crude supplies rose 3.4 million barrels last week, more than twice what market analysts had forecast. US crude supply now stands about 9 per cent more than year-ago levels.

While the price fell on Wednesday, crude oil is still near US$50 as traders watch violence in Iraq, and await an Opec meeting this weekend in Vienna. Some in Opec are signaling that any change in production quotas can wait until March.

Several analysts said Wednesday's fall in futures prices was started by the fundamental supply factor, which led to technical selling.

"Given the tremendous rise in this rally, you've got to think there is some profit-taking going on ahead of the Jan. 30 Opec meeting," said Walter Zimmerman, analyst at United Energy Inc.

US distillate inventories, which include heating oil, fell 2.3 million barrels, slightly less than the 2.6 million barrel fall expected.

Petrol inventories fell 2.3 million barrels, confounding analysts expectations for a 500,000-barrel rise.

The industry-supported American Petroleum Institute said on Wednesday that US petrol supply, which is now 7 million barrels more than a year ago, will be adequate for the spring.

Analysts had predicted distillate fuel supply would fall as retailers and consumers stocked up ahead of weekend blizzards in the US Northeast, the world's largest heating oil market.

A host of Opec ministers said this week that oil prices were too high to justify cutting production at the group's meeting on Sunday, despite some fear of a build in supplies during the seasonally weak second quarter.

The group's president said on Wednesday that Opec is worried about oversupply during the second quarter but can afford to wait until a March meeting before cutting production.

"I think all the numbers say that in the second quarter there will be oversupply in the market. Then maybe a further cut but I think we can delay it until the Isfahan meeting," Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah told reporters.

"To continue with the same ceiling at this meeting will be a very positive signal to the market," he said. Opec meets on March 16 in Isfahan, Iran.

The UAE's Oil Minister Mohamed al-Hamili on Wednesday said that Opec should stick to its current oil output ceiling of 27 million barrels per day when it meets on Sunday.

But traders are unlikely to sell the market heavily ahead of the Opec meeting and Sunday's Iraqi elections, either of which could yield surprises.

- REUTERS