Oil prices fell on Wednesday after the US government said a jump in imports last week boosted crude oil supplies in the world's largest energy consumer. US crude supplies last week rose nearly 1.5 percent to more than 316 million barrels, according to the US Energy Information Administration.
"The most interesting factor is this huge increase in imports," said Joseph Arsenio, of Arsenio Capital Management in California. Crude imports rose 7.5 percent last week, EIA said.
US crude settled at $60.66 a barrel, down $1.78 after jumping $2.12 on Tuesday. London Brent crude fell $1.43 to $58.81 a barrel.
Refineries along the Gulf of Mexico have been slow to return after hurricanes Katrina and Rita. The EIA said refinery capacity rose only 1.6 percentage points last week to less than 81 percent of capacity. Refineries were running at 8.5 percentage points less than last year.
Balancing the slow recovery, US fuel demand continues to be weaker than last year, according to the EIA. Markets have been alert for signs that high prices are destroying demand growth in the United States.
Average oil product demand was down 2.2 percent on the year in the past four weeks, compared to a drop of 3.2 percent in last week's data.
"The obvious implication is demand is occurring, although perhaps at a somewhat slower rate than prior indications," said Arsenio.
And stronger distillate demand last week may have been caused by heating oil wholesalers stocking up for winter, said Doug MacIntyre, analyst at the EIA.
WINTER CONCERNS: Consumers will have to dig deep to pay winter heating oil bills as crude prices remain stubbornly above $60. US light crude has not ended a day below $60 since the end of July.
US distillate stocks, including heating oil and diesel, fell by 1.6 million barrels last week, the US government said. That comes just when stocks should be building ahead of peak winter demand.
"The market is realising we obviously have issues with distillate supplies," said Phil Flynn, analyst at Alaron Trading in Chicago.
Heating oil alone fell by 900,000 barrels to 55 million barrels. Despite the fall, stocks were over 4 million barrels higher than this time last year.
Oil prices rose by more than $2 on Tuesday as chilly weather in the US Northeast brought stock levels sharply back into the market's focus.
The cool weather in the Northeast is a "warning sign of colder weather ahead," said Dale Mohler, meteorologist at Pennsylvania-based AccuWeather.
"Heating fuel stocks are going to be a theme all through winter," said Geoff Pyne, analyst at Enerpy. "Every single refinery outage will feed concern."
Supplies of another winter heating fuel, natural gas, were also tight heading into the cold season after hurricanes Katrina and Rita dealt strong blows to US Gulf natural gas output.
The storm season, already the most active on record, runs to the end of November. Conditions were favourable for the slow development of another storm in the south-west Caribbean, the US National Hurricane Center said on Wednesday.
On Wednesday, the US Minerals Management Service reported that more than 68 percent of US Gulf crude output was still shut in after the storms.
Demand from Europe may further tighten global heating fuel supply if a cold winter forecasters are expecting materialises.
Europe is bound for its coldest winter in a decade, the UK government's weather agency forecast on Tuesday.
Sustained high oil prices are feeding inflation concerns among economists.
Growing fuel bills may cause wage inflation as workers demand higher pay rises to compensate for the higher costs of living, European Central Bank Governing council member Axel Weber warned on Tuesday.
So far, high prices have had little effect on economic forecasts, Weber said.
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