Limited supply fails to stop oil slipping

Traders overlooked steep declines in US inventories sending the price of oil down dispute supply shortages.

Light, sweet crude for November delivery settled down 0.8%, at $US105.73 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange settled down $US102.45 a barrel.

Prices sank despite draws in US petroleum inventories.

The Energy Information Administration reported that crude stockpiles fell by a less-than-expected 1.5 million barrels to 290.2 million barrels in the week ended September 19, while petrol and distillates stocks respectively fell by 5.9 million and 4.2 million barrels, more than expectations. US petrol stockpiles are now at their lowest since 1967.

The market still shed early gains after the data's release.

"It falls to buying the rumour, selling the fact," said Mark Waggoner, president of Excel Futures. "We had a run-up ... because people had anticipated large drawdown."

The declines in US stocks followed Hurricane Ike's landfall earlier this month. More than half of Gulf of Mexico oil production remains shut down, while about 1.2 million barrels a day of refinery capacity was still down, government agencies said.

This has led to suggestions crude could be in a position to bounce higher as refineries ramp up their operations. Last week, refineries ran at 66.7 per cent of capacity, the lowest in EIA records dating back to November 2, 1990 and down 10.7 percentage points from the week earlier.

Crude found support from a report from tanker tracker Petrologistics, which said that OPEC is expected to pump around 800,000 barrels a day less of crude oil in September than August, bringing average output from the cartel's 13 members to 32.6 million barrels a day. The anticipated fall in September output is largely driven by OPEC's two top producers, Saudi Arabia and Iran, the tracker said.

Author: Jo Amey