Crude-oil futures fell below $55, snuffing out a two-day rally amid profit-taking spurred by a steep drop in natural gas futures, even though the government reported bullish storage data for the heating fuel.
"It looks like there is concern that weather will not be as cold as earlier predicted, going forward," said Phil Flynn, an analyst at Alaron Trading in Chicago. "And people are taking profits after the run-up to near $56."
Indeed, traders pointed to some private forecasters calling for a warm-up at the back end of the current 15-day weather outlook.
NYMEX heating oil futures also fell sharply, swayed by the drop in natural gas, a competing fuel.
On the New York Mercantile Exchange, March crude settled down $1.14, or 2.1%, at $54.23 per barrel after bottoming at $54.10.
It peaked earlier at $55.90 which marked the highest level since $56.20 on Jan. 9. A week ago, prices slumped to $49.90, the lowest since May 2005.
U.S. natural gas in storage fell 179 billion cubic feet last week, according to the U.S. Energy Information Administration's weekly report released on Thursday.
While natural gas traders said the stock draw was bullish because it was more than last year's 76 bcf decline and the five-year average drop for that week of 160 bcf, they agreed the market was technically overbought and due for a profit-taking setback.
In addition, they noted some weather pattern changes, citing private forecasters who expect some warmer temperatures in top heating fuel markets after the next two weeks.
A report by oil shipping analyst Roy Mason that OPEC exports will rise 270,000 barrels per day (bpd) in the four weeks to Feb. 10 with no sign yet of the promised February cut hitting supply, also helped fuel the day's selling on crude futures, traders said.
Mason, of oil consultants Oil Movements, estimated OPEC's seaborne exports on a four-week average would rise to 24.56 million bpd, up from 24.29 million bpd to Jan. 13.
Earlier this week, colder weather across the United States, especially in the Northeast where heating oil use is concentrated, buoyed oil and natural gas futures. And the federal government's announced plan to refill its strategic reserves sparked a strong rally on Tuesday.
Heating demand in the U.S. Northeast will average from above to well above normal during the next five days, private forecaster DTN Meteorlogix predicted Thursday.
The six- to 10-day Meteorlogix forecast was for temperatures to average below normal.
Meanwhile, seven Chinese oil workers were still missing after armed attackers kidnapped three of their colleagues in Nigeria on Thursday, according to a spokesman for oil company Shell.
EIA's report on Wednesday showed distillate supplies rose 700,000 barrels in the week to Jan. 19 while gasoline stocks rose sharply, by 4.0 million barrels.
Crude stocks also rose, by 700,000 barrels, according to the statistical arm of the Department of Energy.
Among refineries, Exxon Mobil lowered crude rates on Wednesday at its 563,000 barrel per day refinery in Baytown, Texas, after a small fire in the pump of a crude unit.
NYMEX March crude resistance was put at $57 with support at $52.
Heating oil resistance was briefly breached at $1.60 with support at $1.50.
RBOB's resistance at $1.50 was breached slightly and support was charted at $1.40.