Oil: Market pulls out of nosedive

Oil halted a run of heavy losses on Wednesday, shrugging off rising US fuel stocks as world powers differed over whether to punish Iran for its atomic work and oil workers in Nigeria began a three-day strike.

US crude settled up 21 cents at US$63.97 a barrel after touching US$64.75. Crude had fallen as low as US$63.50, the lowest level since March 23, in earlier activity. London Brent crude settled at US$62.99 a barrel, steady with Tuesday's close.

The rise in US oil came despite a build in heating oil stocks ahead of the northern winter. US distillate stocks, which include heating oil, rose 4.7 million barrels last week, the Energy Information Administration said on Wednesday.

The EIA said stocks were well above the average level for this time of year. The rise was nearly triple the 1.7 million barrels that analysts polled by Reuters had forecast.

"Inventories year over year look really good," said Jason Schenker, economist at Wachovia Bank in North Caroline.

"Even though there is a bigger than expected crude draw, fundamentally I think that this is, from a distillate perspective, a bearish report."

Crude stocks fell 2.9 million barrels, a million barrels more than analysts had expected.

IRAN

The European Union will restart talks with Iran on its nuclear programme on Thursday. The talks are aimed at clarifying an offer diplomats said Tehran made at the weekend to suspend uranium enrichment temporarily.

The United States says it has no knowledge of any such offer, and US officials on Wednesday said the world's No. 4 oil exporter was "aggressively" pursuing atom bombs and should face UN sanctions now.

But China, Russia, Germany and France are wary of cornering Iran and want more time to find a diplomatic compromise. The UN's 35-nation International Atomic Energy Agency's governing board was debating the dispute on Wednesday.

"There are a lot of mixed signals on Iran at the moment," said Mike Wittner, head of energy research at Calyon Corporate Investment Bank.

"But it still looks more likely than it did a few weeks ago that they will proceed down a negotiating road."

Supply concerns from Nigeria also stemmed oil's fall. A strike by Nigerian oil workers stopped shipments from two big export terminals on Wednesday, the first day of a three-day stoppage by unions protesting about security in the Niger Delta.

Nigeria's top oil official, Edmund Daukoru, said the strike would not hit output.

The world's eighth-largest exporter is already losing up to 872,000 barrels per day (bpd), more than a quarter of its production capacity, due to militant attacks and pipeline leaks, officials estimated this week.

US crude had fallen for seven straight sessions through Tuesday as international tension over Iran eased, fuel stocks rose and BP Plc said output would recover more quickly than expected from its giant US Alaskan oil field.

That fall took the price down nearly US$15 from the record high in July of US$78.40. The size of the slide was just shy of a decline that stretched from August to November 2005.

Brent crude has given up more ground in its sharpest slide since 1991, just after the first Gulf war. Brent fell to around 20 per cent off its peak, meeting the technical criteria for the start of a bear market.

Analysts were divided over whether the price fall was the start of a longer-term bear cycle, or a steep correction in a still-bullish market.

The EIA said the recent price drop could be curbed when winter heating oil demand picks up or with any fresh supply disruptions.

"The global balance is expected to remain relatively tight as long as global demand continues to increase at a faster pace than non-Opec supply," the EIA said in its weekly report.

- REUTERS