Oil: Price falls to US$60 as storm threat wanes

NEW YORK - Oil prices fell on Wednesday as dealers expected the season's fifth named-storm, Emily, to spare US offshore oil platforms in the Gulf of Mexico.

US government data showing a large build in distillate stockpiles last week and a report from the Paris-based International Energy Agency downgrading its world demand growth forecasts also pressured prices, dealers said.

US crude for August settled down 61 cents to US$60.01 a barrel, paring down some of its US$1.70 gains made Tuesday. London Brent fell 55 cents to US$58.27 a barrel.

Dealers said worries were easing that Tropical Storm Emily would hurtle into the Gulf of Mexico's oil-producing region -- a major factor in Tuesday's 3 per cent spike.

The National Weather Service predicted Wednesday that the storm would move well south of the concentration of offshore platforms and toward Mexico's Yucatan Peninsula, and also downgraded some of its storm warnings.

"Right now we give it a low probability of affecting the major production areas of the Gulf," said Rod Ferguson of WSI of Billerica, Massachusetts.

Last week's Hurricane Dennis tore through the Gulf of Mexico and briefly shut nearly all of the area's oil production. Companies have been quick to restart operations in the storm's wake, with only 15 per cent still shut as of early Wednesday, according to the US Minerals Management Service.

No significant damage to active oil and gas platforms was reported as a result of Dennis, though BP said its Thunder Horse platform, scheduled to begin producing later this year, was listing 20 to 30 degrees after the storm.

Adding to weakness Wednesday was a report from the US Energy Information Administration showing the nation's distillate stocks rose 3.2 million barrels last week, twice as much as the 1.6 million barrel average rise expected among analysts polled by Reuters.

Distillate stocks have been the focus of oil markets for some time amid concern refiners might struggle to meet rapidly rising demand for diesel and an expected seasonal uptick in consumption of heating oil in the fourth quarter.

"The distillate increase was a bit of a bearish surprise," said Jim Ritterbusch, president of Ritterbusch and Associates. "For them to build more than 3 million amid the storm concerns was a bearish development."

The build overshadowed a decline in US crude stocks of 3.9 million barrels, which was slightly more than the 3.5 million expected after Tropical Storm Cindy disrupted imports and Gulf of Mexico production in the week to July 8.

A sharp fall in petrol stocks of 2.7 million barrels gave some support to prices.

The IEA revised down its forecast for global oil demand growth this year by 200,000 barrels a day to 1.58 million bpd, or 1.9 per cent.

It cited a slowdown in China's demand growth as the major factor, revising down its projection for incremental Chinese consumption by 100,000 bpd to 360,000 bpd, or 5.5 per cent.

"China's price restrictions on transport fuels and power are making it uneconomic for domestic refiners and utilities to maximize output, therefore inhibiting demand," the report said.

Its projections also indicated Opec supply should be sufficient to cope with fourth-quarter demand.

- REUTERS