Oil: Prices drop as US refiners boost output

LONDON - Oil fell below US$72 a barrel on Wednesday as refiners in the United States cranked up petrol output, easing supply crunch worries ahead of the peak demand summer driving season.

US crude settled down 95 cents at US$71.93 a barrel, bringing prices nearly 5 per cent below last week's record, while London Brent futures fell US$1.12 cents to US$72.09 a barrel.

US refiners produced 375,000 barrels per day (bpd) more petrol last week than the week earlier, government data showed. That prevented petrol stocks from falling as much as analysts had forecast last week.

"What the numbers are telling us, with refinery runs going up by a big margin, is that it seems refineries are turning the corner and the worst fears anticipated before the release of the data have been somewhat muted," said Phil Flynn, analyst at Chicago-based Alaron Trading.

Petrol stocks still fell 1.9 million barrels, marking the eighth consecutive week of declines. But analysts polled by Reuters had expected a fall of 2.6 million barrels.

Stocks have fallen in part because refiners were emptying out storage tanks ready for the introduction of cleaner-burning fuels in May.

US President George W. Bush on Tuesday called for waivers on the new clean fuels. In measures aimed at bringing down oil prices, he also called for a crackdown on profiting at the pump and a temporary halt to deliveries of crude oil to the US Strategic Petroleum Reserve (SPR).

Analysts were unimpressed. The SPR delivery halt would only add about 2.1 million barrels of crude oil to the market in May. That is the equivalent to just two or three hours of US daily demand of 21 million barrels per day.

"It's a bit like moving deckchairs around on the Titanic," said Mark Mathias, managing director of Dawnay Day Quantum hedge fund.

"These measures are cosmetic and insignificant in the grand scheme of things. The oil market fundamentals are very big and very strong. This is not a market to be short in," Mathias said.

Funds have ploughed billions of dollars into the energy markets and have bought oil whenever prices dip, with the view that fundamentals will be tight for years. US crude futures as far out as December 2012 were at US$68.50 a barrel Wednesday.

The short-term outlook is also bullish due to concern about supply from Nigeria and Iran, Mathias said.

Concern about the potential for deeper cuts in supply from Nigeria rose after Exxon Mobil boosted security at its 420,000-bpd Qua Iboe oil export terminal in Nigeria Tuesday due to the threat of attack by militants.

A quarter of Nigeria's output has been shut in for more than two months due to militant attacks. US refiners favor Nigerian crude for petrol production.

Tension over Iran's nuclear programme mounted ahead of International Atomic Energy Agency chief Mohamed ElBaradei's Friday report to the UN Security Council on the country's compliance with a demand to halt uranium enrichment.

Iranian officials have said Tehran will not use its oil as a political weapon, but traders were still fearful the dispute could hit exports from the world's fourth-largest suppliers.

- REUTERS