Traders take profits as balance between global supply and demand are re-evaluated.
November 11, 2004: 11:45 AM EST
LONDON (Reuters) - Oil prices fell sharply Thursday as signs of strong supply encouraged dealers to take profits following a bounce in the previous session.
U.S. light crude for December delivery tumbled $1.16 a barrel to $47.70 on the New York Mercantile Exchange, almost $8 lower than the record $55.67 trading high hit in late October.
Brent crude for December delivery slid 90 cents to $43.85 a barrel in London, unwinding gains of over a dollar Wednesday triggered by a fresh fall in U.S. heating fuel stocks ahead of winter.
The Energy Information Administration (EIA) reported a 1.8 million barrel rise in U.S. crude inventories Wednesday, almost closing the deficit against a year earlier. This is the seventh week in a row that crude stocks have risen.
"Buyers are voting with their feet. Futures prices were too high and stocks seem to be ample," said William Buchanan at Standard Bank in London.
"The insatiable desire for sweet crude seems to have fizzled out. There is a prompt glut coming up to the end of the year and people are less and less willing to pay up for expensive crude," Buchanan added.
The EIA said heating oil stocks had dropped 100,000 barrels last week, more than 10 million barrels under year-ago levels.
Overall distillate stocks, including heating oil and diesel, were down for the eighth week and are now 17 million barrels below last year, a potential worry if the winter is a cold one.
"Heating oil stocks are not building even in the face of high refinery utilization, indicating demand is still strong," said David Thurtell at Commonwealth Bank of Australia in Sydney.
U.S. distillate consumption has been running seven percent above last year as solid economic growth drives demand, raising a hurdle for fuel suppliers trying to build up heating oil stockpiles for the high-demand winter season.
Temperatures in the big U.S. Northeast heating oil market are expected to remain chilly for the next 10 days. Private forecaster EarthSat said the coming U.S. winter could be 4.5 percent colder than last year.
But crude supplies look stable with Saudi Arabia aiming to keep shipments high in December.
The world's biggest exporter has boosted output to about 9.5 million barrels daily to meet this year's surge in demand. It told buyers in Europe, the United States and Asia that its supplies next month would be at the same level as in November.
"The Saudis are maintaining deliveries in December, which should help build a safety buffer in supplies. Fifty dollars a barrel is not in the interest of producers or consumers," said Thurtell.
Exports also resumed from Iraq's northern oil fields via Turkey after a halt of several days due to a sabotage attack. Shipping sources told Reuters that oil was flowing at a rate of 22,000 barrels per hour.
But traders are watching how the situation develops in OPEC's second largest producer Iran, which is due to say in the next few hours if it has accepted an EU deal to freeze potentially weapons-related nuclear work.
A refusal could see it being referred to the U.N. Security Council, raising the specter of sanctions against the country which produces 3.7 million barrels per day of crude.
A senior Iranian official said on Thursday he was optimistic Iran would halt its uranium enrichment programme as Europe demands.
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