Oil Falls on High U.S. Inventory, Libya Limits Loss

Oil fell on Wednesday, weighed down by swelling crude inventories in the United States while President Barack Obama was expected to set a long-term goal to cut oil imports.

U.S. crude trimmed earlier losses and North Sea Brent turned positive as U.S. employment data came out in line with expectations and due to support from the civil unrest in North Africa and the Middle East.

Brent crude futures (LCOc1 rose 1 cent to $115.01 a barrel at 1310 GMT. U.S. crude was trading 27 cents lower at $104.52, having fallen to as low as $104.13.

The trading volume on both contracts was relatively small, with the end of the first quarter near.Prices have risen from $93 at the end of December, touching 2-1/2-year highs just below $120 in February.

Christopher Bellew with Bache Commodities cited bulging crude oil stocks in the United States and a dip in fuel demand between the winter heating season and the summer gasoline season as a factor capping any gains in oil prices.

"In the short term we are at the end of the Northern Hemisphere winter, with a seasonal fall in demand," Bellew said.

"The dichotomy is between the world being well supplied with oil in the short term and the uncertainties that loom in the medium term."

In the medium term, prices are likely to be supported by civil unrest in the oil-rich Arab world and an expected increase in oil and gas demand following a global backlash against nuclear power generation. Nuclear reactors in Fukushima, Japan, continue to emit radioactivity after severe damage caused by an earthquake and tsunami earlier in March.

In the long term, Obama will outline a strategy to cut oil imports by a third over 10 years, focusing on energy security at a time high gasoline prices could stall U.S. economic recovery.

The White House says this is a deliberate turn toward energy security by Obama and will be followed by other events to highlight his strategy. But the immediate market reaction was limited.

"It sounds like a very ambitious target indeed," said Carsten Fritsch, analyst at Commerzbank.

"It will be difficult to achieve. Perhaps there will be large energy, fuel saving measures or they would need to allow more oil drilling, but after the Gulf of Mexico (spill) it could be difficult."


U.S. government oil data is expected to show a 1.8 million barrel increase in the week to March 25 when it is released at 1430 GMT, a Reuters poll of analysts showed.

Late on Tuesday, separate data from industry group the American Petroleum Institute showed crude stocks rose by a sharp 5.7 million barrels last week.

In Libya, rebels pulled out of the oil town of Ras Lanuf on Wednesday under heavy bombardment from Muammar Gaddafi's forces, showing their weakness without Western air strikes to tip the scales in their favour.

A conference of 40 governments and international bodies on Tuesday agreed to press on with a NATO-led aerial bombardment of Libyan forces until Gaddafi complies with a U.N. resolution to end violence against civilians.

In Syria, President Bashar al-Assad will on Wednesday give his first public speech since pro-democracy protests erupted in the south of the country.

U.S. ADP employment data showed the private sector added 201,000 jobs in March, in line with expectation.

That followed Tuesday's gloomy reading of U.S. consumer confidence in March due partly to high fuel costs.