Oil slips from earlier gain due to inventory jump

LONDON: Crude oil prices slipped in choppy trading on Thursday, reversing earlier gains, due to an unexpected jump in crude oil inventories in the United States.

Remarks from some OPEC oil producers, including Saudi Arabia, that the group might increase the official output ceiling also weighed oil prices.

By 1543 GMT, US crude futures fell $1.43 to $98.86 a barrel, slipping below a 100 day moving average. Brent crude fell 41 cents to $114.12 a barrel, having risen more than $1 earlier.

US crude oil inventories jumped by 2.9 million barrels in the week to May 27, government data from the Energy Information Administration (EIA) showed.

That was mostly in line with figures from the industry group American Petroleum Institute (API), which on Tuesday showed a 3.5 million barrel increase for the same week.

The increase was in contrast to analysts' forecast of a 1.3 million barrel drop ahead of the release of the data.

The EIA figure also showed crude oil stocks in the United States, the world's second-largest energy consumer, averaged 371.34 million barrels in May, the highest level since at least 2006.

"The numbers confirm the bearish API report," said Gene McGillian, analyst with Tradition Energy in Connecticut.

But he added a weak dollar could continue to support oil prices.

"The market is still stuck between $95 and $105 a barrel. We will soon go back to watching the financials and as long as the dollar is under pressure, this crude rally will remain in place," he said.

The dollar fell to a one-month low against a basket of currencies earlier on Thursday after dismal economic data the previous day stoked fears the US recovery will be slow, with more losses seen if Friday's payrolls figure is weak.

OPEC

The Organisation of Petroleum Exporting Countries (OPEC) will meet next week to review its output policy.

Ali al-Naimi, the oil minister of the most influential OPEC producer Saudi Arabia, said OPEC is ready to raise production to meet any increased demand.

Earlier on Thursday an OPEC delegate said the group might consider raising output by up to 1.5 million barrels per day.

An output increase would be at odds with a Reuters poll that predicted OPEC would roll over its current output agreement, untouched since a record cut in December 2008.

An OPEC target rise of 1 million bpd would result in only a small increase in the amount of oil coming to the market. That is because part of the rise would simply absorb above-target supply that some members of the group in OPEC are already pumping, the OPEC delegate said.

The 11 members of the group bound by OPEC production targets pumped 26.23 million bpd in May, nearly 1.4 million bpd above their 24.84 million bpd target, a Reuters survey showed.

However, some members said an increase would not be necessary. The Algerian energy minister said he did not expect OPEC to raise output.

Iran, normally hawkish on prices, thinks preserving OPEC's production ceiling is the only way to control the oil market, the semi-official Mehr news agency quoted Iran's OPEC governor Mohammad Ali Khatibi as saying.

Copyright Reuters, 2011