Oil: Prices fall on rising US supply, weak natural gas

Oil prices fell 1.6 per cent on Thursday as dealers focused on a sturdy US inventory surplus heading into spring and weakness in the natural gas market.

US light crude futures fell 79 cents to $47.54 a barrel on the New York Mercantile Exchange. London Brent crude fell 33 cents at $45.82 on the International Petroleum Exchange.

The losses cut into Wednesday's dollar-plus gains made on worries a fresh Opec cut could drain hefty stockpiles and make it hard for refiners to produce enough fuel.

Opec, which controls about 40 per cent of global oil exports, has been contemplating a cut to its output limits to defend prices in the second-quarter, when demand typically slows. The cartel meets in mid-March.

A US government report released on Wednesday showed crude stocks in the world's largest energy consumer 8.5 per cent higher than last year and petrol supplies 7.4 per cent higher, at the highest level since 1999.

Hefty inventory levels, the result of strong imports and domestic refinery output, have helped to ease concerns of a springtime crunch when nicer weather and vacation season draws more motorists to the roads.

US petrol futures slumped 4.63 cents to $1.2365 a gallon on the NYMEX.

The energy market's attention tends to shift toward petrol in the late winter as heating demand dissipates and suppliers begin preparing for the driving season.

Also pressuring crude prices Thursday was weakness in the natural gas futures market. Futures fell to a five-week low below $5.95 per million British thermal units (mmBtu).

Mild US temperatures this winter have helped curb demand for the key heating fuel, allowing storage to rise more than 20 per cent above normal, according to a report from the Energy Information Administration Wednesday.

Opec LOOMS

The market remains buoyed by concern a big enough slide in prices or a large enough increase in inventories could lead Opec to slash its production this spring.

Core Gulf Opec producer the United Arab Emirates (UAE) said on Thursday that current oil prices, again within reach of $50 a barrel, were reasonable.

Opec acting Secretary-General Adnan Shihab-Eldin told Reuters that members were leaning toward cutting output at their March 16 meeting to defend prices against a second-quarter stock build.

"If the price looks to be falling now, then after winter we will propose and support a cut in production," Venezuela's Oil Minister Rafael Ramirez said on Wednesday.

Prices have also been supported by an increasingly tight outlook this year, with Opec and the International Energy Agency this month upgrading their forecasts for demand growth.

Global demand has climbed much faster than most analysts - including Opec itself - expected over the past two years, helping drive prices to a record-high $55.67 last October.

"China is the big factor from the demand side," said James Burkhard, analyst for Cambridge Energy Research Associates (CERA). "And the fear of supply disruption hasn't dissipated. "

- REUTERS