Oil: Inventories reach high levels

Oil fell more than a dollar to below US$62 a barrel on Monday as healthy fuel inventories in top consumer the United States countered plans by Opec members Nigeria and Venezuela to trim output.

Nigeria and Venezuela last week pledged to cut supply by about 170,000 barrels per day, less than 1 per cent of Opec's total output, from Oct. 1. Stocks of distillates in the United States are at a seven-year high.

"The fundamentals are not very rosy -- we've got very high stocks," said Olivier Jakob of Petromatrix. "The market is expecting now to have a bit less production from Opec, but the question is how much."

US crude was down US$1.40 at US$61.51 a barrel by 1739 GMT. Oil had traded as low as US$61.14 before news that militants in Nigeria had attacked a pumping station by Royal Dutch Shell lent support to prices.

London Brent slipped US$1.71 to US$60.77.

Oil in New York has picked up from a fall to a six-month low below US$60 early last week, even though other Opec members, including top world exporter Saudi Arabia, have not announced any move to trim supply.

Some traders said the planned cutbacks by Nigeria and Venezuela would have little impact on prices unless larger producers in the Organisation of the Petroleum Exporting Countries also said they would join the move.

"The only significant thing would be if Saudi Arabia announced they were going to cut output, which they haven't," said Christopher Bellew, a broker at Bache Financial in London. "I really don't think anyone expects much in the way of output cuts at the moment."

Opec's second-largest producer, Iran, on Sunday backed any move by the 11-member group to bolster the market, while stopping short of saying it would trim its own output.

Iran will support any Opec move to bring oil prices back to an "acceptable and logical" level, Iran's Opec Governor Hossein Kazempour Ardebili told Iran's official news agency IRNA.

INVENTORIES HIGH

Oil has also been under pressure from brimming US inventories. Stocks of distillates stood at 151.3 million barrels in the week ended Sept. 22, highlighting ample supply of heating fuel ahead of the Northern Hemisphere winter.

"We've got high stocks and a lot of weather forecasts have been for a mild start to the winter," Bellew said. "People may be disappointed on the demand side in the next two to three months."

Analysts polled by Reuters said US government weekly inventory data to be released on Wednesday will show distillate stocks up another 1.3 million barrels for the week ending Sept. 29, with petrol stocks up 900,000 barrels. Data for crude stocks was expected to show a 700,000 barrel fall.

Recent weak economic data has also raised doubts about the sustainability of economic growth in the United States in late 2006 and early next year.

Still, Goldman Sachs said it expected robust demand to last into the fourth quarter.

Combined with a drop in petrol production and an expected decrease in gas imports, the bank said oil prices should find support until the end of this year.

The row over Iran's nuclear programme remains a focus for the oil market. Easing concern about the standoff has helped bring prices down from July's record high of US$78.40 in New York.

Tehran has said nothing so far to suggest it plans to halt uranium enrichment, US Secretary of State Condoleezza Rice said on Monday.

The foreign ministers of the five permanent members of the UN Security Council and Germany might meet later this week to discuss Iran's nuclear programme, she told reporters.

- REUTERS