Oil prices slid towards $49 a barrel on Thursday after US crude stocks rose unexpectedly and rebels in Nigeria's oil-rich delta region agreed to a cease-fire with the government, reducing an imminent threat to supplies.
US light crude slipped 16 cents to $49.35 a barrel, a little over $1 below on Tuesday's all-time peak at $50.47. London's Brent crude dipped 6 cents to $46.02 a barrel.
A rise in US crude inventories and the truce in Nigeria have offered some relief to concerns over a potential severe supply disruption as the Northern Hemisphere heads into winter.
But analysts said the market remained nervous of other possible outages in the Middle East or Russia and those fears were keeping prices bubbling not far off record levels.
"If someone blows up a pipeline tomorrow in Iraq we could be backs above $50 or even in the mid-$50s," said David Thurtell, a commodity strategist at Commonwealth Bank of Australia in Sydney.
"If nothing happens, we need to see some stocks building in the US over the next few weeks, not only of crude but heating oil too. Then prices may head back towards the mid-$40s."
The US Energy Information Administration on Wednesday reported a 3.4-million-barrel rise in US crude inventories in the week to September 24 the first rise in nine weeks.
Analysts on average had expected a decline of 3.8 million barrels, as companies struggled to recover production in the Gulf of Mexico and poor weather delayed shipments into the Louisiana Offshore Oil Port following Hurricane Ivan.
But reduced refinery processing after Ivan forced gulf coast plants to temporarily close cut into refined product supplies.
Distillate fuel stocks, including heating oil, fell 1.3 million barrels to 125.5 million, nearly 5 million barrels below this time last year, the EIA said.
Commercial heating oil tanks are running at a deficit of 1.3 million barrels compared with a year ago. Heating oil stocks normally build at this time of year ahead of peak winter demand.
Oil prices broke above $50 for the first time this week after Nigerian rebels threatened to launch an offensive on Friday in the Niger delta, home to most of the Opec producer's output of 2.3 million barrels per day.
Global supplies are already tightly stretched as producers pump almost at full tilt to meet the fastest growth in oil demand for 24 years. Rebel leader Mujahid Dokubo-Asari said on Wednesday he had agreed a truce to last for the duration of talks with President Olusegun Obasanjo.
But he also warned that oil companies should leave the region until a final deal was reached on autonomy and oil revenues for the impoverished Jaw people of the delta. Average US prices this year of $39 a barrel, adjusted for inflation, are near those of the Arab oil embargo in 1973-1974.
But they remain much lower than the record $80-a-barrel annual average high following the 1979 Iranian Revolution.
On Tuesday's move above $50 prompted Saudi Arabia, the top Opec exporter, to announce it would boost its official production capacity by 500,000 bpd to 11 million bpd.
The new capacity is not expected to have any immediate effect on actual production, with the kingdom already having said it would meet demand for 9.5 million bpd this month and next.
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