Oil: US stockpiles continue to swell

Oil prices slid below US$61 a barrel on Wednesday on rising winter fuel stocks and waning concern about Iran, but Saudi Arabia, the world's largest exporter, signaled the market may have fallen enough.

US crude was down 71 cents at US$60.95 a barrel at 1745 GMT after touching US$60.60, the lowest since March 21.

The market was close to erasing this year's gains, after crude closed 2005 at US$61.04. Oil has retreated more than US$17 from its July record high of US$78.40 in its steepest decline in 15 years.

London Brent was down 77 cents at US$61.40 a barrel.

Brimming inventories of US distillates fuel rose more than expected last week, to their highest level since January 1999, the government reported on Wednesday.

Distillates, which include heating oil, rose 4.1 million barrels, compared with forecasts for a rise of 1.9 million barrels among analysts polled by Reuters.

US fuel inventory levels have bolstered a perception among investors that the world's biggest oil consumer was well prepared to meet winter demand.

Stocks are also high in other large consumers, such as Japan and Germany.

"Everything is bearish in this market. Sentiment has completely changed and we are still going lower here as there are no signs that we are bottoming out," said Mark Waggoner, president of Excel Futures in Huntington Beach, California.

The price slide has revived discussion about what price level would prompt the Organisation of Petroleum Exporting Countries to cut production to stem the fall.

Saudi Oil Minister Ali al-Naimi on Tuesday described prices as reasonable for the first time since the market scaled record highs. "The oil industry is convinced that this price is reasonable," Naimi told reporters in Riyadh.

"Prices now are rewarding to both producers and consumers and their impact on the global economy is small."

Some Opec ministers have signaled a price of US$50 to US$60 a barrel should be sustained, but the cartel has avoided setting a formal target. The Opec basket stood at US$58.85 on Tuesday.

"It all depends now on how fast the price declines," said Eoin O'Callaghan of BNP Paribas. "It would be difficult for Opec to justify a cut with the US price above US$60 and concerns about a US economic slowdown. But it is our view that some time in the near future Opec will have to cut."

FUNDS HURTING

Price falls are hurting investment funds that have poured billions of dollars into energy markets as they bet on tight supplies for years ahead.

"Lots of people are losing money and hedge funds must liquidate their long positions," said Tetsu Emori, chief strategist at Mitsui Bussan Futures. "Fundamentals are also getting weaker."

The US$9 billion Amaranth Advisors fund told investors this week it may be hit by billions of dollars in losses due to the sharp drop in natural gas prices.

Oil supply risks related to Iran's nuclear ambitions also appeared to be easing further as foreign ministers from the major powers -- the United States, Russia, China, Britain, France and Germany -- agreed on Tuesday to give European Union foreign policy chief Javier Solana more time to explore a possible nuclear deal with Iran.

"Clearly now, a serious negotiation phase will follow, so the chances that Iran's oil will be withdrawn from the market any time soon have gone from low to very low," said Tobin Gorey, commodity strategist with Commonwealth Bank of Australia.

- REUTERS