Oil: Price steadies after three per cent fall

NEW YORK - Oil prices steadied on Thursday after falling three per cent the previous day when a surprise increase in US fuel stocks eased worries about meeting peak winter demand.

US light crude futures settled down 6 cents US$44.18 a barrel after falling US$1.52 on Wednesday. The oil price has lost five per cent this week. The New York Mercantile Exchange will be shut for Christmas Eve on Friday.

London Brent rose 7 cents to US$40.71 a barrel.

Although prices are up 35 per cent since the start of the year, they have fallen sharply from the Oct. 25 all-time high of US$55.67 a barrel as consumer inventories rose and a mild start to winter capped demand, particularly in the US Northeast.

Despite the region's first blast of real cold last week, stockpiles of distillates -- which include winter fuel heating oil and diesel -- climbed 600,000 barrels to 119.9 million barrels in the week to December 17, government data showed.

Expectations of a draw were thwarted by refiners cranking out a record 4.2 million barrels per day (bpd) of distillates, countering the weather-driven demand spike.

Analysts said the figures helped soothe some fears of a shortage this winter. But dealers were cautious due to forecasts for chillier temperatures this weekend and in the first quarter next year, and on strong overall US distillate demand growth.

Distillate demand is up over six per cent on the year.

"This leaves the market on a knife edge," said Barclays Capital in its weekly energy report.

"If the winter is normal or colder than normal, then the distillate market will be tight enough to keep prices well supported. In our view, should distillate demand tail off, then there is little else... to hold up short term prices."

Tanks of heating oil alone were unchanged at 49.9 million barrels last week and their deficit versus last year's inventory was just under 12 per cent, marginally narrower than before.

RUSSIAN SALE

Dealers also kept tabs on the saga surrounding the sale of embattled Russian oil giant YUKOS's key unit, which has been effectively nationalised by state-owned Rosneft's purchase of Baikal Finance Group, the obscure winner of Sunday's auction.

A Rosneft official on Thursday said that it had bought Baikal, making it one of Russia's biggest oil firms with output of 1.45 million bpd, nearly as much as OPEC member Libya.

Traders took some heart that Yuganskneftegaz, which pumps one million bpd, had landed with a well-known company that should be able to keep supplies flowing. YUKOS was forced to cancel two exports cargoes this week due to unpaid port duties.

"This does provide a bit of stability to supply out of that region. The fears that there would be some disruption have probably been allayed by this move," said Daniel Hynes, commodities analyst at ANZ Bank in Melbourne.

Yukos' oil exports in January have for the first time been split up between its output units as officials try to keep exports flowing smoothly. The cargoes are not due to load until the last 10 days of January.

Total volumes of Russian Urals crude exports from the Baltic port of Primorsk in January will hit a record high of 1.15 million barrels per day, up from 1.07 million bpd in December. Exports from the Black Sea port of Novorossiisk exports will be steady at around 900,000 bpd.

With some 500,000 bpd of production from the United States, Canada, Norway and Nigeria still out of commission, the global supply chain has little slack to deal with extra outages.

- REUTERS