Crude prices below $52 a barrel after report showing strong increase in supplies.
October 28, 2004: 6:30 AM EDT
LONDON (Reuters) - Oil prices continued to slide Thursday, extending its two-day loss to nearly 7 percent, after an unexpectedly large rise in U.S. crude inventories spurred speculative funds to take profits following a surge to record high prices.
U.S. light crude for December delivery fell 74 cents to $51.72 a barrel in electronic trading early Thursday. Prices hit a record high $55.67 three days ago and traded as high as $55.60 during Wednesday's session.
London Brent crude lost 75 cents to $48.70 a barrel, more than $3 below Wednesday's all-time high.
Prices slumped Wednesday after U.S. government data showed a bigger-than-expected increase of 4 million barrels in weekly crude oil inventories, narrowing the supply deficit against last year to 9 million barrels.
"The crude stock build exceeded expectations and that was an excuse for some guys to take money off the table," said David Thurtell at Commonwealth Bank of Australia in Sydney.
There were also signs of large speculative hedge funds, which have boosted their presence on energy markets this year amid paltry returns in other areas, moving some resources out of oil toward equities and the U.S. dollar, both of which rallied.
Funds were also taking the opportunity to lock in profits ahead of next week's U.S. election, traders said. Some speculate that a victory for President Bush could bolster oil's rally, while a win for challenger John Kerry could ease prices.
"We're seeing some fund realignment at the moment. People are moving money out ahead of the U.S. election." said an oil trader with a major bank in Singapore.
Oil is still up nearly 60 percent this year and almost $10 over the past two months, driven by blistering demand growth that has pushed global production to its limit and stoked fears that refiners have not made enough heating oil to last the winter.
Maintenance over
Analysts say stocks should be replenished more quickly now as refiners emerge from seasonal maintenance, although Wednesday's data from the Energy Information Administration (EIA) showed supplies deeply below 2003 levels.
Heating oil stocks fell 600,000 barrels to 48.9 million, about 15 percent below last year, the data showed.
With the threat of a pipeline attack in Iraq, a strike in Nigeria or a severe winter in the U.S. Northeast, which would cause heating oil usage to spike, still present, analysts were not ready to call an end to this year's rally.
"We could easily revisit those high levels," Thurtell said.
A tight global supply chain got some relief from news that U.S. Gulf of Mexico output was recovering from last month's Hurricane Ivan, with output up nearly 100,000 barrels per day (bpd) from last week, a government agency said Wednesday.
As world concern grows over higher energy costs, the OPEC producer cartel took the unprecedented step of urging the United States to tap its emergency crude reserves to bring down world oil prices on Wednesday, although Washington rejected the notion.
It appeared the strongest sign yet that the cartel believes high prices have spun beyond its control and pose a real threat to their future revenues if rising energy costs slow world economic growth, or spur usage of alternative fuels.
OPEC, which pumps over a third of the world's oil, usually regards government stockpiles as a threat to its own market influence.
The Federal Reserve said Wednesday that higher prices had put a crimp in consumer and business spending in September and October, although the economy continued expanding.
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