Oil: Price holds over US$54

NEW YORK - Oil prices ended with modest gains on Tuesday, holding near US$54 a barrel as Opec said it would not immediately increase output to cool the market.

Gains were checked by a strong dollar and swelling US crude oil stocks.

The Opec cartel's president said the group does not need to increase oil production now but will need to raise supply by more than one million barrels per day for the third quarter.

US light crude settled up 18 cents at US$54.23 a barrel, more than US$3 below an all-time peak hit on March 17 but still up about 25 per cent since the start of the year.

London's Brent crude fell 90 cents to US$53.03 a barrel, catching up with Monday's 80 cent loss in New York when European markets were on holiday.

"Expectations of higher (US) interest rates ... in turn caused a strengthening of the dollar, pushing hedge funds who see commodities as a hedge against a falling dollar to back off their bullish crude stance," said Washington D.C.-based consultants PFC Energy in a report.

The dollar struck a five-month high versus the yen early on Tuesday, its ninth straight gain, and hovered near its six-week peak against the euro.

Dealers saw little market impact from last week's deadly blast at BP's giant Texas City refinery, which damaged an isomerisation unit that upgrades the quality of petrol but left most of the plant's operations unaffected.

BP said the incident cut no more than 5 per cent of petrol production at the 470,000 bpd plant, the third largest in the United States.

Even so, traders are on alert for refinery problems that could disrupt supplies ahead of the summer, when demand peaks as Americans increase their driving.

US petrol inventories were forecast to have fallen 1.3 million barrels in the week ended March 25, the fourth draw in a row, a Reuters poll of 13 analysts showed. Petrol stocks are 7.5 per cent higher than a year ago.

By contrast, crude oil stockpiles were expected to have risen by 2.3 million barrels keeping inventory levels at their highest since mid-2002.

Opec lifted its formal output ceiling by 500,000 bpd to 27.5 million bpd in mid-March in an effort to pump up second quarter global stocks, creating a cushion for anticipated robust fourth quarter demand.

Opec said then it would consult on whether it would increase quotas by a further 500,000 bpd if oil prices continue to rise.

"We have to be patient during this time and for the second quarter because prices have not increased," Sheikh Ahmad al-Fahd al-Sabah, also Kuwait's oil minister, told reporters in Qatar.

"But I believe there will be an increase in production at the end of the second quarter because the market will need it. "

The oil ministers of Qatar and Algeria said this week that they saw markets well supplied, even though some consuming nations are complaining about the impact of higher energy costs.

"We think (high prices) hurt growth by about 0.5 per cent a year," Indian Finance Minister Palaniappan Chidambaram told reporters.

- REUTERS