UPDATE 7-U.S. oil drops $2 on Fed tapering fears; supply

Anna Louie Sussman
Tuesday, 12 Nov 2013 | 2:19 PM ET

* Disruptions to Libyan exports dampen supply prospects

* Conflicting signals from Iran talks add volatility

* Brent/WTI spread widens as U.S. oil stocks seen rising

(Updates prices, changes byline)

NEW YORK, Nov 12 (Reuters) - U.S. oil futures fell more than $2 a barrel on Tuesday amid speculation the U.S. Federal Reserve may ease up on its monetary stimulus program, a move that could tighten money and lessen the appetite for risky asset.

Global equity markets and government debt also dipped as traders parsed comments from Minneapolis Fed President Narayana Kocherlakota and Atlanta Fed President Dennis Lockhart for clues on the Fed's stimulus, which has supported commodity prices.

Any tapering would "tighten the screws on the market," said Bob Yawter, director of commodity futures at Mizuho Securities in New York.

"It's not good for any risk asset," he said.

U.S. crude for December delivery fell $2.23 per barrel to $92.91 by 2:15 p.m. EST (1915 GMT). Brent crude for December delivery gave up 36 cents to trade at $106.04 a barrel.

U.S. crude was also pressured by an anticipated build-up in U.S. crude stockpiles, which widened the spread between the two benchmarks by over $1 to around $12.69 a barrel. <CL-LCO1=R>

Heating oil fell in choppy trading, despite the market's expectation for tight supplies going into winter. The December contract fell by more than one percent to $2.8555 per gallon, after posting a session high of $2.9015.


Brent oil found some support from disruptions to Libyan oil exports and a lack of agreement between Western nations and Iran over its nuclear program.

Strikes and protests across the country have slashed Libya's oil exports to below 10 percent of its 1.25 million barrels per day (bpd) capacity, boosting oil prices.

Unsuccessful weekend talks over Iran's nuclear program lifted Brent off last week's four-month low on Monday, but investors were waiting for the next round of talks on Nov. 20 for clearer signals as to whether sanctions against Tehran will be relaxed.

"The bounce we were getting off of geopolitical stuff, people are starting to realize it really doesn't matter here 1/8in the U.S. 3/8, because we are very well supplied," said Phil Flynn, an energy analyst at the Price Futures Group in Chicago, Illinois.

"Unless we get a really big headline, we're going down a bit."

The sanctions have buoyed global oil prices by removing more than 1 million bpd of crude from world markets.

Expectations for a increase in U.S. crude stockpiles pressured U.S. oil in particular, as a preliminary poll of Reuters analysts forecast a 1.6 million barrel rise in stocks when the U.S. Energy Information Administration publishes its data on Thursday.

Industry group the American Petroleum Institute will release its report on U.S. crude stocks on Wednesday.

On Tuesday, OPEC predicted that demand for its oil in 2014 will average 29.57 million bpd, unchanged from its previous estimate.

(Additional reporting by Jeanine Prezioso in New York, Alexander Winning in London and Jacob Gronholt-Pedersen in Singapore; Editing by David Holmes, Nick Zieminski and Bob Burgdorfer)