Oil Prices Slide on Inventory Increase, Europe Worries

Reuters

Oil fell more than a dollar to below $110 a barrel on Wednesday, pressured by a surprise increase in U.S. inventories and doubts that a credible deal to resolve Europe's debt crisis will be reached at a summit on Friday.

Comments from top world oil exporter Saudi Arabia that it had increased supply, a week before a meeting of the Organization of the Petroleum Exporting Countries, added to the downward pressure on prices.

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Brent crude fell $1.27 to $109.54 by 1604 GMT. U.S. crude was $1.13 lower at $100.15.

Pessimistic comments from Germany and new figures exposing growing stress among Europe's banks took the shine off hopes in financial markets of a turning point in the euro zone debt crisis at this week's meeting.

"The oil market is easily disappointed. People are a bit wary," said Seth Kleinman, an analyst at Citigroup.

Saudi Arabia said it was pumping oil at the highest rate for decades in a signal just a week before the OPEC meeting that it intends to meet customer demand with more output if necessary.

The kingdom produced 10.047 million barrels per day of crude oil excluding condensate in November, a senior Saudi oil official told Reuters. However, some analysts were sceptical as to how accurate this figure was.

"We do not buy that number," Harry Tchilinguirian, analyst at BNP Paribas said.

"This may simply be case of the usual pre-OPEC meeting build-up in communication, where Saudi is showing its strength as the main holder of spare production capacity."

OPEC is due to meet on Dec. 14 in Vienna to discuss output policy for early 2012.

U.S. INVENTORIES 'BEARISH'

U.S. crude oil inventories last week rose unexpectedly, while product stocks jumped more than forecast, according to data from the Energy Information Administration on Wednesday.

Crude oil stocks rose 1.34 million barrels, compared with analysts' forecast for a 600,000 barrel decline, the EIA report said.

"It was a bearish number, especially for crude," said Chris Dillman, an analyst at Tradition Energy in Connecticut.

"Weaker equities and a stronger dollar pushed us lower earlier. People are waiting for what is coming out of the EU summit on Friday and the ECB rate decision tomorrow."

The EIA report issued at 1530 GMT contrasted with figures on Tuesday from industry group the American Petroleum Institute, which said crude stockpiles fell 5 million barrels.