Oil slips as U.S. gov't reassures on gasoline supply

An oil processing facility outside the Siberian town of Nefteyugansk in a file photo. Oil fell more than four percent on Monday, extending declines that followed Iran's release last week of 15 British sailors and marines.

NEW YORK (Reuters) - Oil prices eased slightly on Friday after the top U.S. energy official said he was confident there would be enough gasoline supply to meet peak summer driving demand.

The loss ended a week-long rally of as much as 5 percent that had been driven by worries that a bout of refinery problems in the world's top fuel consumer would lead to a stockpile crunch when motorists hit the road for vacation season.

U.S. crude settled down 22 cents a barrel to $63.63, after jumping $1.84 on Thursday. London Brent was up 25 cents at $68.97 after earlier hitting $69.59 earlier in the day, its highest since September 2006.

"I am relatively confident that we're going to continue to have supply," U.S. Energy Secretary Sam Bodman said Friday. "I'm concerned, not so much with supply as I am with prices."

U.S. gasoline inventories have slumped more than 12 percent since early February, fueling a 40 percent climb in U.S. gasoline futures and sparking forecasts of pump prices well over $3 a gallon.

"Gasoline has been at the forefront of the reasons for crude to go higher, combined with geopolitical tensions," said trader Tony Machacek of Bache Financial.

Several refineries in the United States have shut fuel-producing units in recent days, adding to heavy maintenance since early winter that has taken plants offline for planned repairs.

U.S. gasoline RBc1 rose to a fresh eight-month high of $2.2134 a gallon Friday before settling a shade lower at $2.1740 a gallon.

SHARP CLIMB

Crude prices are up more than 27 percent from this year's low of $49.90 in January, helped higher by unease between the West and Iran over Tehran's nuclear program and OPEC's agreed cuts of 1.7 million barrels per day.

The IEA, energy adviser to 26 wealthy nations, said crude oil output remained below what was needed to allow the usual spring build up in crude stocks.

Violence at elections in Nigeria this weekend could add to supply disruptions in Africa's biggest oil producer, but traders are not expecting trouble on a scale that would cut output much more than the loss of one fifth of capacity already factored in.

U.S. crude has been held low relative to London Brent because of high stocks at the NYMEX delivery hub at Cushing, Oklahoma, pushing Brent to a record high of $6 above U.S. crude this week.

Goldman Sachs said in a research note the weakness of U.S. crude to Brent would diminish later this year, as refinery problems are resolved and crude stocks fall. But trade sources said refinery outages in the Cushing area were still expected to rise in May.

(Additional reporting by Matthew Tostevin in London and Cho Mee-young in Singapore)