Oil prices are back under $54 a barrel amid a steep rise in U.S. heating oil stocks and news that Belarus has resumed pumping crude to Europe.
U.S. oil futures settled at $54.02, a 19-month low, but have continued to fall sparked by a warm U.S. winter and aggravated by a shift in investment fund money.
Closely watched data in the U.S. showed a bigger-than-expected rise in distillate stocks, which include winter heating oil, last week.
"The one startling statistic is the growth in distillates inventory, which reflected the mild or non-existent winter," said Joseph Arsenio, analyst at Arsenio Capital Management in California.
"This scenario is not likely to alter in the short run."
Distillate stocks rose 5.4 million barrels last week against analysts' forecast of 2.2 million.
Oil prices have been hammered 10% this month by warm weather in the U.S. Northeast, the world's biggest heating oil market, as well as by a broad commodity sell-off by investors who fear the market may have passed its peak.
Warm Winter Effect
Merrill Lynch analysts estimated "synchronous global warm winter weather" had reduced oil demand in OECD industrialized countries by 300,000 barrels per day in December and was likely
to cut back January demand by 600,000 bpd.
"In total, during the first half of the winter, OECD demand could drop by nearly 38 million barrels relative to the seasonal norm," Merrill Lynch said in a research note.
Selling had already begun earlier on Wednesday after Belarus said a compromise had been found to resume exports of Russian crude to Europe via the Druzhba pipeline following a trade row. Belarus said it had scrapped transit tariffs on Russian crude.
The operator of the Druzhba pipeline said it started pumping oil at 3:35 p.m. New York time.
Some investment funds, partly responsible for driving prices to a record $78.40 last year, are now shifting to short positions, analysts say.
"Chasing the Trend"
"People have been chasing the trend on oil prices but the fundamentals are weaker this year and they have to look for other opportunities," Tetsu Emori, chief strategist atMitsui Bussan Futures, said.
Oil traders have cited talk of possible hedge fund losses as contributing to the market's fall. On Wednesday equity traders in Asia said stock market losses were partly caused by funds liquidating positions to cover oil losses.
Weather forecaster DTN Meteorologixpredicted above normal temperatures for the rest of the week in the U.S. Northeast.
The price slide has prompted talks between OPEC's president and fellow oil ministers on what further action should be taken to brake oil's decline, OPEC sources said yesterday.