Oil prices fell below $55 on Thursday as profit taking and ample US fuel inventories countered cold weather in the Northeast, the world's biggest heating oil market. US crude settled down $1.14 to $54.23 a barrel, after hitting $55.90 earlier in the day. London Brent crude fell $1.31 to $54.12 a barrel.
Inventory data released by the US government on Wednesday showed surprise builds in gasoline and distillate stockpiles, raising expectations that an arctic blast deepening into the US Northeast would not be enough to strain supplies. "It looks like there is concern that weather will not be as cold as earlier predicted," said Phil Flynn, an analyst at Alaron Trading in Chicago.
Profit taking and weakness in the natural gas market added to pressure, as traders sold out of an oil rally fuelled in part by news the US government planned to expand its emergency crude reserves.
US natural gas futures prices fell about 7 percent on Thursday, reversing course after a sharp rally early in the week that had been triggered by cold. Oil prices had their biggest gain since November 20 on Tuesday after the United States announced plans to build up its Strategic Petroleum Reserve by 11 million barrels this spring. They extended that rally Wednesday.
"The response to the SPR announcement is significant in its implication that longs are now entering the market with a bit more confidence," said Barclays Capital. However, US Energy Department officials said on Wednesday the purchase could be delayed if prices are high. Energy Secretary Sam Bodman said on Thursday that filling the reserve should not put upward pressure on prices.
"This is a long-term thing, so it's not something that should affect prices in the near term," Bodman told Reuters in Davos, Switzerland, where he was attending an economic forum. "Obviously, it is better for the world's economies that oil is in the mid $50s rather than the mid $70s. That's an improvement," he said.
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