Oil: Price falls to five-month low

LONDON - Oil dropped briefly below US$56 a barrel on Friday for the first time in five months as investors grew confident that hefty fuel stockpiles would see the world's consumers through cold winter weather.

Unseasonably warm temperatures have allowed refiners in the United States, the world's biggest consumer, to pile up crude and oil products depleted by a savage hurricane season.

Storage tanks are also brimming in Europe, where gas oil inventories in the trading hub of Rotterdam leapt to a new six-year high.

US crude settled down 20 cents to US$56.14 a barrel after falling as low as US$55.40, the lowest since June 15. London Brent crude gained 3 cents to US$54.88.

Investors have been selling heavily since oil sped to an August record of US$70.85, leading industrialized nations to release emergency oil to offset US refinery and oilfield losses from Hurricane Katrina.

"We've been looking for a long-term correction in oil prices and we're definitely seeing investors think more solidly about lower prices," said Justin Smirk, senior economist at Westpac.

Speculators are betting prices will keep falling and have pushed net short positions to the lowest level in more than two years. Prices have fallen more than US$14 from an August 30 peak.

This could leave the market vulnerable to a price spike, especially if predictions of a colder-than-normal winter begin to drain inventories, analysts said.

"Current warm temperatures have lulled the market into a false sense of security regarding winter fuel availability and funds are running very short of crude oil and heating oil futures," said Kevin Norrish of Barclays Capital.

The price of the Organisation of the Petroleum Exporting Countries' basket of crudes fell below US$50 a barrel for the first time since early June on Thursday.

Breaking that barrier may prompt some cartel members to raise the possibility of supply cuts at its next meeting on Dec. 12 in Kuwait.

Venezuela's Minister of Energy and Petroleum Rafael Ramirez said on Friday Oil cartel Opec should consider cutting production if crude prices continue to fall.

"If this tendency continues, we should study a cut in production," Ramirez told reporters.

US Energy Secretary Sam Bodman said on Friday he was confident Gulf producers will keep world oil markets well-supplied and will be able to expand their crude production capacity.

Bodman will attend a meeting of oil consuming nations and producers on Saturday to discuss calls for greater oil market transparency and investment in production capacity.

- REUTERS