Oil: Price slips below US$59

Oil slipped a dollar to below US$59 a barrel on Tuesday as investors awaited formal word from Opec producers on supply curbs of around 1 million barrels a day to prop up prices.

The Organisation of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, is working out details of the cut, but has yet to formally announce an agreement.

"The market is awaiting definitive word from Opec," said Mike Wittner, analyst at Calyon investment bank. "Until Opec gets its act together, they run the risk of the market testing their resolve and prices drifting lower."

US crude was down US$1.09 at US$58.87 a barrel by 1653 GMT. London Brent crude lost US$1.07 to US$59.47.

Opec's plan to lower supply comes after a slide in prices from a peak of US$78.40 hit in July alarmed many members of the 11-nation group. The cut would be Opec's first since April 2004.

Talks continue on the plan to reduce Opec's output limit by 1 million bpd, Iran's Opec governor said on Tuesday, the oil ministry's website reported. The 28 million bpd output ceiling covers 10 members, all except Iraq.

"Efforts to reach agreement of Opec members to reduce 1 million barrels of crude oil from the production ceiling of this organisation and creating stability in the market are continuing," Iran's Hossein Kazempour Ardebili said.

On Monday, top Opec producer Saudi Arabia lowered shipments to global oil majors, signalling its intent to join the supply curbs. The kingdom appeared to spare refiners in Asia from further reductions, sources said on Tuesday.

Opec president Edmund Daukoru has sent a letter to member countries proposing the group cut 1 million bpd, equal to about 3.4 per cent of total Opec supply. He requested responses by the end of Tuesday.

Ministers remain undecided whether to meet in person to formalize the cut before their next scheduled gathering on Dec. 14 in Nigeria, an official at Opec's Vienna headquarters said.

NORTH KOREA, CHINA

Tension over North Korea, which claimed its first nuclear test on Monday, lent support to prices as world powers condemned the communist state. China's build-up of its strategic crude reserves may bolster the market further.

China, the world's second-biggest oil consumer, began filling its oil reserves by pumping at least 1 million barrels of crude into new tanks in August, official media and port sources said on Tuesday.

As much as 3 million barrels of crude had been diverted into the tanks, in a move traders say may put additional strain on global markets, two port sources told Reuters.

While the dispute over North Korea is unlikely to affect oil flows, traders were watching for any impact on the row between the West and major oil exporter Iran over Tehran's nuclear work.

Traders' attention will turn later this week to the latest report on fuel inventories in the United States, the world's top oil consumer. The Energy Information Administration's report is due out on Thursday.

US distillate inventories, which include heating oil, probably rose last week as refiners raised output ahead of winter, an initial Reuters poll of analysts showed.

- REUTERS