Oil hovers below $79 after US crude supply drop

[February 24, 2010]  BERLIN (AP) -- Oil prices remained below $79 a barrel Wednesday as a strike at French crude refineries seemed close to ending, while a report showed U.S. crude inventories unexpectedly fell last week -- a tentative sign that demand may be improving.

Caption: A natural gas flame burns Tuesday in the Sakhir, Bahrain, desert. Oil prices hovered above $80 a barrel Tuesday in Asia as investors mulled whether sluggish U.S. crude demand justifies a 15 percent rally over the last three weeks. (AP photo; Hasan Jamali)

By early afternoon in Europe, benchmark crude for April delivery was down 31 cents to $78.55 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $1.45 to settle at $78.86 on Tuesday.

Oil has bounced between $70 a barrel and $80 for most of the last six months as investors wait for signs that U.S. crude demand is catching up with an overall economic recovery. So far those signs have been lacking.

Crude inventories fell 3.1 million barrels last week, the American Petroleum Institute said late Tuesday. Analysts had expected an increase of 2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Supplies of distillates, which include heating oil and diesel fuel, also fell while gasoline supplies grew, the API said.

The Energy Department's Energy Information Administration is scheduled to announce its supply report -- the market benchmark -- later Wednesday.

French refinery workers were expected soon to end a nearly weeklong strike, which has been seen supporting oil prices on fears of a gasoline shortage in France.

The walkout had been sparked by concerns about oil giant Total SA's plan to convert a refinery in Dunkirk, northern France, for other uses, as well as about as the future of refining in general. Total's refineries are losing euro100 million ($135 million) a month, a company spokesman said.

Analyst and trader Stephen Schork said falling consumer confidence and uncertainty about how the U.S. jobs situation was developing continued to weigh on oil demand.

"In other words, it's dark right now, real dark, but that does not necessarily mean dawn is breaking," Schork said.

In other Nymex trading in March contracts, heating oil lost 1.08 cents to $2.0215 a gallon, and gasoline fell 1.06 cents to $2.0550 a gallon. Natural gas was down 3.1 cents at $4.747 per 1,000 cubic feet.

In London, Brent crude was down 40 cents at $76.85 on the ICE futures exchange.

[Associated Press; By PABLO GORONDI]

Associated Press writers Alex Kennedy in Singapore and Greg Keller in Paris contributed to this report.

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