NEW YORK Oil fell nearly 2 percent to $58 a barrel on Wednesday after a U.S. government report showed a smaller-than-expected drop in heating oil inventories in the world's top energy consumer.
U.S. crude CLc1 settled down $1.06 at $58.00 a barrel, dipped as low as $57.50 in earlier activity. London Brent LCOc1 fell $1.35 to $57.43 a barrel.
U.S. distillate stocks including heating oil fell by 3 million barrels last week, the Energy Information Administration said, less than the 4.2 million barrel draw forecast by analysts. <EIA/S>
"The distillates decline should disappoint market bulls following the recent cold spell last week," said Christopher Jarvis, senior analyst at Caprock Risk Management in New Hampshire.
Oil rose $1.25 in New York on Tuesday after the International Energy Agency, an adviser to 26 industrialized countries, raised its forecast for world demand in 2007.
Prices have climbed from a 20-month low of $49.90 reached on January 18 after colder weather boosted fuel demand in the huge U.S. Northeast heating oil market and OPEC members reduced supply. Oil is still down from an all-time high of $78.40 hit in July 2006.
The drop in oil was limited by EIA data showing U.S. crude and gasoline inventories both unexpectedly declined last week. Crude stocks fell by 600,000 barrels and gasoline by 2 million barrels.
"There were some bullish aspects to the release," BNP Paribas said in a report. "Gasoline recorded a surprise fall."
"In recent weeks, gasoline stocks have been rising strongly as exceptionally elevated levels of production helped drive the build," the bank said.
With only a few weeks of the Northern Hemisphere winter remaining, attention is shifting from heating oil to gasoline, which is the main driver of prices during the U.S. summer.
Threats to supply in big oil producing nations such as Nigeria and Iraq have helped support prices.
Rex Tillerson, chief executive of Exxon Mobil Corp. (XOM.N), said on Tuesday U.S. crude prices would be between $40 and $45 a barrel if there were no risks of supply disruptions.
Violence has stemmed oil flows in Nigeria and Iraq. OPEC's second biggest exporter, Iran, is at odds with the United Nations over its nuclear program and at risk of tougher sanctions.
Russia, the world's No. 2 oil exporter, halted a pipeline across Belarus last month in a trade dispute with Minsk. The rest of Europe felt the impact.
(Additional reporting by Yaw Yan Chong in Singapore, Janet McBride and Alex Lawler in London and Matthew Robinson in New York)