Oil: Prices fall on weather and rising stocks

Oil prices hovered above a three-month low on Wednesday after US data showed an increase in crude stocks, while warm weather sapped demand for winter fuels.

US light crude oil prices was 35 cents at US$59.50 a barrel, recovering from an intraday low of US$59.05 hit on Tuesday, the weakest level since late July.

Brent crude was 27 cents lower at US$58.10 a barrel.

Data from the US government's Energy Information Administration showed crude stocks had risen by 2.7 million barrels to 319.1 million in the week ending October 28, compared with analyst forecasts for a two-million barrel rise.

Petrol stocks rose by a million barrels, roughly in line with expectations, while distillates, including heating oil, fell by 0.2 million barrels, compared with analyst forecasts for a 0.8 million barrel fall.

Traders said the data was largely bearish, though analysts pointed to the fact an increase in refinery activity had had a relatively modest impact on inventory levels.

"The EIA data indicate there's a lot of crude out there," said Phil Flynn, analyst at Alaron Trading in Chicago. "But even with refinery activity increasing, refineries seem to be having difficulty building up distillate supplies." Temperatures in Europe and the United States have been above normal, but should longer term forecasts for colder weather prove correct the market could struggle to cope.

US crude prices reached a peak of US$70.85 in the immediate aftermath of Hurricane Katrina, but then fell back sharply and have lost more than US$10 from the record high.

Evidence that demand has been weakened by high prices, as well as warm weather, has helped to pull the market lower.

Many analysts are nevertheless sceptical about "demand destruction" and Wednesday's data suggested any slowdown was limited.

Total product demand over the past four weeks was 1.8 per cent lower than a year ago, the EIA said on Wednesday.

A week ago, it had said demand was 2.2 per cent lower and two weeks ago, it had said it was 3.2 per cent lower.

US refining capacity is gradually recovering from the impact of this most active Atlantic hurricane season on record, though concern is mounting about European fuel supplies because of a strike at Shell's 418,000 barrels-per-day Pernis refinery, the largest in Europe.

Shell said on Wednesday the refinery in Rotterdam would be completely shut in about a week if the strike continued, but a union spokesman said he expected talks beginning later on Wednesday to yield results.

- REUTERS