Oil prices fell below $58 a barrel on Thursday, as US inventories held steady against the impact of hurricanes, with crude stocks showing a smaller-than-expected drop and distillates rising strongly. The new frontmonth September contract for US crude futures lost 34 cents to $57.68 a barrel in Asian trade.
The August contract expired on Wednesday, falling 74 cents to a three-week low of $56.72 a barrel. London Brent crude for September delivery fell 47 cents to $56.18 a barrel.
"There is a near-term bearish tone in the market. What had kept the market high in recent months were distillates. But they are getting comfortable," said Tony Nunan, a Tokyo-based manager at Mitsubishi Corp's international energy business.
The US Energy Information Administration said (EIA) oil stocks were holding at the upper end of the average range for this time of year, despite fears Hurricane Dennis would cut into offshore production in the Gulf of Mexico and delay imports.
Dealers said this helped ease market worries of tight supply this winter, even though concerns the market was ill-prepared to deal with sudden disruptions lingered.
US crude stocks were off 900,000 barrels last week, against forecasts of a hefty drop of 3.7 million barrels.
Distillate inventories, including heating oil, continued to pile up over the last two months. The latest weekly rise of 2.3 million barrels was higher than earlier projections for an increase of 1.7 million barrels.
On the demand side, the EIA said its weekly oil report overstated growth in energy demand because upward revisions to last year's figures had not yet been applied.
The EIA's weekly report showed on Wednesday total US petroleum demand over the last four weeks averaging nearly 20.7 million barrels per day (bpd), or 1.1 percent more than the year-ago period.
An EIA spokesman said that rate of growth did not reflect the recent 214,000-bpd upward revision the administration made to its 2004 total oil demand figures.
The American Petroleum Institute (API) said overall US crude and oil products demand fell 0.4 percent in June from a year earlier, while higher prices caused the weakest demand growth in the first six months of this year since the first half of 2002. API, the oil industry association, also said expensive heating oil was discouraging households from filling their tanks early for the winter, causing heating oil stocks to surge above normal levels in the US Northeast. It said this could make it difficult for some refineries to find storage.
Hurricane Emily, the fifth named storm of the Atlantic hurricane season, skirted most of the oil and natural gas fields in the US Gulf, sparing production. But it shut nearly 3 million barrels per day (bpd) of output from Mexico.
The Central American country, the world's ninth-largest crude oil producer, has resumed exports of crude from its three main ports along the southern rim of the Gulf, which were earlier closed ahead of Emily.
A supplier of oil to the US, Mexico has also restarted production in the Gulf.
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