Oil: US fuel inventories rising

Oil tumbled more than 2 per cent on Wednesday as growing US fuel stockpiles eased worries over supplies leading into the summer driving season.

However, the market was set on edge after Iran's oil minister said Tehran could halt crude exports if its standoff with the West over its nuclear ambitions escalated.

US crude oil fell US$1.68 to US$70.82 a barrel by 1830 GMT, after dropping as low as US$70.50, while London Brent crude lost US$1.62 to US$69.19.

US crude supplies rose 1.1 million barrels last week, theld powers aimed at persuading Tehran to stop enriching uranium.

Washington believes Iran is trying to build a nuclear bomb, but Iran has said it only wants to boost electricity supplies in the country.

Iran said the proposals had some positive steps but added there were ambiguities that needed to be corrected. Iran's top oil official added on Wednesday the country could still use the oil card if needed.

"We need oil exports because currency that comes from them should be used to build infrastructure. However, if we feel we have to, we will defend our rights," Oil Minister Kazem Vaziri-Hamaneh told Iran's official news agency.

Iran's Supreme Leader Ayatollah Ali Khamenei rattled oil markets earlier this week after he said oil flows from the Gulf would be endangered if Washington made a "wrong move."

In Nigeria, militants attacked a Shell-operated oil facility in the Niger Delta, killing 10 security force members and kidnapping five South Korean contractors.

The attack comes just three days after eight foreign oil workers were released by a different group of kidnappers, and is the latest in a series of militant attacks that has cut a quarter of the Opec member's oil production.

Nigeria's oil minister Edmund Daukoru told Reuters in Brussels he expected violence in the country to abate within a reasonably short time, and a substantial amount of shut-in production to be back on stream in a month.

High oil prices have sparked worries over softer demand and higher inflation in the United States, the world's top energy consumer.

Daukoru, who is also the Opec president, warned that rising inflation could hit oil demand but, with prices at current high levels, Opec would be best advised to err toward oversupply.

- REUTERS