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Oil Tumbles 2%, to Below $58, Despite Cold Weather

Oil prices fell more than a dollar on profit-taking despite a lingering deep freeze in the U.S. that was boosting demand for heating oil.

U.S. crude settled down $1.17, or 2%, to $57.71 a barrel, erasing earlier gains. London Brent crude dropped $1.19 to $57.23.

Traders said the decline in prices was due to profit-taking after a nearly 20% climb since mid-January, brought on by a blast of arctic air across the major heating fuel markets of the U.S. Midwest and Northeast.

"The momentum ran out and $60 has turned out to be firm resistance," said Mike Fitzpatrick, vice president for energy risk management at Fimat USA.

U.S. government data on Wednesday showed distillate stocks, which include heating oil, fell 3.7 million barrels last week as consumers burned more fuel for heating.

It was the biggest decline in distillate inventories since mid-October 2006, and the second weekly draw in a row. Analysts had anticipated a decline of 3.2 million barrels, according to a Reuters survey.

Crude stocks, meanwhile, fell by 400,000 barrels, in contrast to a forecast rise of 1.4 million barrels.

Analysts said inventories in the world's biggest energy consumer could continue to fall due to the cold.

"This really hard freeze didn't extend across the whole country until this weekend," said Mike Fitzpatrick, vice president at Energy Risk Management at Fimat USA. "I think you'll have to wait for next week's numbers to get a fuller picture of heating demand."

OPEC AND Stocks

The U.S. Energy Information Administration (EIA) said today that, due to OPEC output cuts, commercial oil stocks in industrialized countries would fall 900,000 barrels per day in the first quarter -- three times faster than average for the time of year.

Even though OPEC was unlikely to curb supplies as much as it has agreed, the cuts could prevent the typical rise in oil inventories during the second quarter.

That may pave the way for OPEC to raise output again by around a million bpd by the fourth quarter to meet an expected rise in global demand, the EIA said.

At the same time as OPEC is cutting output, non-OPEC suppliers are failing to bring on new projects as quickly as expected and increasing the need for OPEC oil to plug the gap.

"The major dynamic in the market at the moment is in supply," said Paul Horsnell, analyst at Barclays Capital.

"Non-OPEC supply is disappointing, and at the same time OPEC is cutting. Demand is picking up to more normal levels because of the weather. So it's being squeezed all round. You are going to get some fairly chunky draws in inventories at some point."

Oil prices are near the $60 level that often prompts consumers to call for additional supplies, but OPEC is pushing ahead with a 500,000 bpd cut that came into effect from Feb. 1. That follows a 1.2 million bpd cut from Nov. 1 last year.