Oil eased to below $82 a barrel today, snapping a nine-day winning streak, after industry data showed a surprise rise in US distillate inventories last week even though heating oil supplies fell.
Cold weather in the United States, Europe and parts of Asia boosted demand for heating fuel, pushing crude to its highest settlement in nearly 15 months on Tuesday.
But sentiment was dented after data from the American Petroleum Institute (API), released after the close, showed U.S. distillate supplies rose 962,000 barrels last week, against expectations for a 1.9 million barrel drop.
The market is eyeing weekly inventory data from the Energy Information Administration (EIA), due later in the day, for further clues on the outlook for demand from the world's top energy user.
US employment data and a gauge of December non-manufacturing activity, also scheduled for release today, could confirm that the world's largest economy is on the road to recovery, albeit a patchy one.
US crude for February delivery fell 19 cents to $81.58 a barrel by 0240 GMT, after settling up 26 cents yesterday at $81.77, its highest settlement since early October 2008.
London Brent crude eased 12 cents to $80.47.
"The market's biggest worry right now is the U.S. inventory levels, but overall, I think the firm tone can be sustained, and we should see a range of $75-$85 in the near term," said Keiichi Sano, general manager of research at SCM Securities in Tokyo.
"The rally has been driven by cold weather, and this will continue for the next one to two weeks. We're seeing covering of speculative short positions after the cold snap set in."
Frigid temperatures in the United States were expected to boost the country's heating demand to 21 per cent above normal, with consumption in the US Northeast - the largest heating oil market - seen 11 per cent above average levels.
Freezing temperatures in Britain are expected to continue into the second half of January after the coldest December since 1995, while colder temperatures in Europe are seen gradually spreading from the northeast to the southwest over the next few days.
API data unveiled yesterday showed US heating oil stocks, a major part of distillates, fell 1.3 million barrels for the week to Jan. 1, while crude stocks fell a larger-than-expected 2.3 million barrels. Gasoline inventories, however, jumped 5.6 million barrels.
Investors are also watching for further developments between Russia and Belarus after an oil dispute saw Russia briefly cut off supplies to the Eastern European nation.
Belarus sent a delegation to Moscow yesterday for talks to resolve the dispute that has raised the spectre of winter supply problems for the European Union.
Reuters