Oil: Price eases as inventories rise

NEW YORK - Oil prices fell on Thursday after a bigger-than-expected rise in US fuel inventories soothed worries of a winter squeeze.

US oil futures dropped 75 cents to US$46.80 (US$67.21) a barrel, recovering from a low of US$46.40, on the New York Mercantile Exchange. London Brent crude fell 61 cents to US$44.10 on the International Petroleum Exchange.

US commercial crude inventories rose last week by 3.4 million barrels, bringing supplies to about 8 per cent above last year, as refineries slowed for seasonal maintenance, the Energy Information Administration reported late on Wednesday.

Winter heating oil stocks fell by 500,000 barrels, but their deficit compared with a year ago narrowed to just 4 per cent as the first half of the Northern Hemisphere winter proved milder than usual.

"Heating oil remains the strongest part of some rather soggy data," Barclays Capital said in a report.

Worries about a winter crunch still lingered as the US Northeast was in the midst of its most severe cold spell of the season, driving up demand as householders and businesses fire up heating furnaces.

Temperatures have been 9-12 degrees C below normal and will remain at least 14 degrees below normal through the weekend, private forecaster Meteorlogix said on Thursday.

Crude prices are up 9 per cent since the start of the year, with only 10 days until Iraqi elections, which traders fear could spur sabotage attacks.

Sabotage on Iraq's northern pipeline was expected to keep oil exports through Turkey at a standstill for another two to three weeks, an Iraqi oil official said Wednesday.

Iraq's southern exports of 1.5 million barrels per day have been mostly spared the sabotage that has paralyzed northern supplies.

The Organisation of Petroleum Exporting Countries meets on Jan. 30 to discuss whether it may need to deepen supply cuts ahead of the second quarter. But oil is still some way above the US$40 target that some members recently mooted as a possible new price floor.

The International Energy Agency's executive director, Claude Mandil, told Reuters on Thursday that Opec should refrain from further production cuts at the meeting to calm nervous markets.

"They don't have to be afraid of high stocks ... prices are high compared to last year and there's still a lot of uncertainty," Mandil said.

Opec's president, Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah, said on Wednesday the current high prices were the result of the US cold snap and that the production group would ensure global markets are adequately supplied.

Opec oil to be shipped in the four weeks ending February 5 sank by 650,000 bpd, marking the biggest drop since April, a shipping analyst said on Thursday.

- REUTERS