Oil sinks on surge in U.S. crude

Oil sinks on surge in U.S. crude

Reuters, London

Oil prices fell for a second straight session Wednesday on an
unexpected jump in U.S. oil inventories, countering forecasts of
leaner supply.

International benchmark Brent crude oil fell 36 cents to
US$26.10 per barrel by midday in London, while U.S. crude futures
slipped 41 cents to $26.88.

Prices were already weaker on Tuesday after Israel withdrew
its troops from the West Bank city Hebron, raising speculation
that Iraq may end an oil export embargo in support of the
Palestinians.

Data published by the American Petroleum Institute showed
crude oil imports to the United States hit a six-month high of 10
million barrels per day last week.

Traders had predicted a fall due to recent disruptions in
Venezuela and Iraq, which are leading suppliers to the world's
biggest energy consumer.

"There is little doubt that the API report is bearish... but
the Middle East is still a dominant factor in sentiment," said
Lawrence Eagles of brokers GNI Research.

Baghdad has said it will review its embargo on May 7, a month
after it began, and will lift it if Israel makes an unconditional
withdrawal from Palestinian controlled areas.

Oil prices have jumped by a third since the beginning of this
year as futures markets factored in a premium reflecting the risk
of the crisis spreading into the oil-rich Gulf region.

Israeli troops have pulled out of most West Bank cities but
still surround Palestinian President Yasser Arafat's compound in
Ramallah and the Church of Nativity in Bethlehem, where some 30
gunmen are holed up.

Despite the surprise jump in U.S. stocks last week, Mike
Rothman of investment bank Merrill Lynch said he saw the first
signs of tightening supply.

"Depending upon the duration of Baghdad's self imposed export
hiccup... we're looking at the prospect of a large portion of the
stock build-up that took place earlier this year being greatly
reduced," he said.

Global stocks of oil built up at the beginning of the year
because an unusually warm winter in the northern hemisphere
combined with the economic slowdown to hit demand.

Even if the Israeli-Palestinian conflict eases, oil traders
see further potential for disruption to Iraqi supplies.

Baghdad and the United Nations are due to start talks on
weapons inspectors returning to Iraq on Wednesday, and the
Security Council is expected to vote this week on a renewal of
Iraq's oil-for-food deal under which it exports almost two
million barrels of oil daily.

"There seems to be a reasonable risk that Iraqi oil flows
could remain lower than forecast," Rothman said.