Oil: Price slides further as US stocks swell

LONDON - Oil prices fell 2.2 per cent on Thursday as stocks swelled and demand stuttered in the United States, the world's top consumer, and the threat from Hurricane Wilma receded.

US light crude oil futures settled down US$1.38 to US$61.03 after sliding briefly below US$60 for the first time in nearly three months. London Brent crude settled down 69 cents to US$57.91.

The steep decline came after US data on Thursday showed a big rise in natural gas stocks, adding to a huge build in crude inventories and a shock rise in petrol stocks reported on Wednesday.

"There has been increasingly bearish news in the energy sector over the last couple of weeks," said Seth Kleinman of PFC Energy in Washington.

"Equities have been hammered, reflecting the broader financial community's view that energy is at its peak." The International Energy Agency met in Paris on Thursday and agreed to allow any unplaced oil from its initial emergency reserves release to remain available to the market.

The IEA, adviser to 26 industrialised nations, leapt into action with a 30-day release of up to 60 million barrels of crude and refined products like petrol on Sept. 2, days after Hurricane Katrina slammed into US Gulf rigs and refiners.

Analysts were deeply divided on the outlook.

Some said oil could fall further if the latest hurricane to menace the Gulf of Mexico, Hurricane Wilma, stays its current course toward Florida and away from oil facilities.

"The bears need only final confirmation that Wilma will miss the western Gulf of Mexico in order to challenge support at US$60," consultancy PFC Energy said in a report.

The stock-build takes US crude supplies nearly 12 per cent above a year earlier after hurricanes Rita and Katrina closed Gulf Coast refineries and slashed demand for feedstock.

The US data also showed a decline in total oil product demand deepening to 3.2 per cent over the past four weeks, a bigger drop than last week's 2.8 per cent, although petrol and distillate deliveries maintained similar year-on-year weakness.

Other analysts said tightening supplies of fuels such as heating oil, which fell last week but remain higher than this time in 2004, could spell higher prices as the Northern Hemisphere approaches winter, when global demand peaks.

"If a normal or colder-than-normal US East Coast winter were to be thrown into the equation, the situation might become fairly critical," said analysts at Barclays Capital.

The UK Meteorological Office has predicted a colder-than-average winter for much of Europe and the coldest winter in a decade for Britain.

Private forecaster EarthSat said this week that the US Northeast would be chillier than last year.

Economic data showing major economies still powering ahead, despite high prices, has also checked oil's decline from its end-August record peak of US$70.85 a barrel.

But a top Bush administration official said a prolonged stretch of record prices could harm economic growth.

"High energy prices are burdening household budgets and raising production costs, and continued increases would at some point restrain economic growth," White House economic adviser Ben Bernanke said on Thursday.

Hurricane Wilma, which spooked traders when it threatened to give western Gulf of Mexico oil facilities their third beating this year, was expected to track instead toward Florida.

- REUTERS