Oil: Supply worries overshadow big stocks

Oil prices rose on Wednesday as nervousness about future supply tightness offset the impact of healthy inventories for now.

The latest US government data revealed crude and petrol inventories had risen by more than expected, but it also indicated strong petrol demand. That added to concern supplies will fall short because exports from Opec producers Iran and Nigeria are under threat.

US light crude for April delivery was 44 cents higher at US$61.85 a barrel, while Brent was up 40 cents at US$62.16 by 1640 GMT.

"It's easy to get sucked into weekly changes in inventory level, but behind that, we still have very strong demand," said Kevin Norrish of Barclays Capital.

US government data revealed a 1.6 million barrel increase in crude stocks compared with expectations for a 1.2 million barrel build, according to a Reuters survey.

Inventories stand at 328.3 million barrels, up from 300.9 million barrels a year ago.

Petrol inventories rose by 300,000 barrels, compared with forecasts for no change, and distillates, including heating oil, fell by 1.5 million barrels, slightly more than the forecast of a 1.3 million barrel fall.

At the same time petrol demand over the past four weeks stood at 9.01 million barrels per day, up 2.5 per cent from the same time a year ago. Dealers are particularly worried about petrol stocks as heavy US maintenance and government requirements to supply cleaner burning summer petrol from May are expected to squeeze supplies in the world's biggest fuel consumer.

VULNERABLE SUPPLIES

Supplies from producer nations are also vulnerable.

Chevron on Tuesday said it had shut in 13,000 barrels per day of oil production in Nigeria because of a pipeline leak.

There was no evidence the outage was the result of sabotage, but it added to unease following militant violence that has forced Shell to cut its Nigerian production by 455,000 bpd.

Apart from the actual disruption of Nigerian crude, traders are worried Iranian supplies could be affected by the dispute between the West and Iran.

Iranian officials met a Russian delegation on Wednesday to discuss Moscow's proposal to carry out uranium enrichment for the Islamic Republic on Russian soil.

But Tehran stuck to its line that even if a deal was struck with the Russians, it would not abandon efforts to enrich uranium at home.

The International Atomic Energy Agency meets in Vienna on March 6 to discuss a report on Iran's nuclear activities before it is forwarded to the UN Security Council, which could consider sanctions.

The Organisation of the Petroleum Exporting Countries (Opec) meets two days later to discuss second-quarter policy.

Analysts predict the meeting will leave output unchanged as high prices outweigh considerations stocks could swell in the second quarter when demand traditionally eases.

Speaking in Washington, Opec President Edmund Daukoru said the market was well-supplied and that high prices had so far had a minimal impact on economic growth.

- REUTERS