Oil: Price dips below US$71

Oil fell over 2 per cent on Thursday to its lowest price in nearly two months as ample US fuel stockpiles eased investor fears of supply shortages ahead of the US summer driving season drawing to a close.

Although prices have fallen for four consecutive sessions, the market is still up 14 per cent this year on healthy global demand, geopolitical tensions and supply disruptions in key oil-producing countries.

US light, sweet crude for September delivery dropped US$1.69 to US$70.20 a barrel by 1805 GMT, its lowest since late June. London Brent fell US$1.06 to US$71.77 a barrel.

US crude prices have tumbled more than 7 per cent, declining in six of the last eight sessions, as a cease-fire took hold in the Middle East and BP said it would shut in only half of its 400,000 barrels-per-day (bpd) Prudhoe Bay oilfield for pipeline repairs.

"We've had a raft of bearish news. Some of the factors and disruptions that helped drive us to very high levels have been resolved now," said Eoin O'Callaghan of BNP Paribas.

Some dealers had feared the partial closure of the biggest oilfield in the United States might trigger a surprisingly large drawdown in this week's crude inventories, but data on Wednesday showed a decline of 1.6 million barrels, in line with forecasts.

Crude stocks have fallen from the eight-year high reached earlier this year but still remain higher than at almost any time since 1999, giving refiners a sizable supply buffer to guard against any unexpected disruptions.

Petrol inventories dropped by a deeper-than-expected 2.3 million barrels, but demand eased from the previous week as the summer driving season, which ends in early September, began to wind down.

"Very robust petrol demand did not translate into a considerably large stock draw," O'Callaghan said. "There hasn't been that sharp fall many were expecting."

Distillate stocks rose 800,000 barrels and heating oil supplies stand higher than a year ago, the data showed.

Supplies of natural gas, also used for winter heating, stand at historically high levels for the season. US gas supplies last week rose by 37 billion cubic feet, above forecasts, the federal government said on Thursday.

Middle East security concerns remain a factor for the market, as Iran -- Opec's second-largest producer -- faces a self-imposed deadline of Aug. 22 for responding to a package of incentives meant to end its uranium enrichment.

Foreign Minister Manouchehr Mottaki said on Wednesday that Tehran was ready to discuss with the West the issue of suspending enrichment but would explain that it believes any halt to be "illogical."

Iran says it wants to make fuel for nuclear power plants. The West accuses Iran of using its civilian nuclear programme as a smokescreen to build atomic bombs.

- REUTERS