Oil Prices Fall as Cold Fails to Boost to Demand

Oil fell sharply towards $54 a barrel on Wednesday after a cold snap in the United States failed to trigger the long-awaited boost in demand in the world's largest heating oil market.

U.S. crude futures tumbled 97 cents to $54.07 a barrel by 1605 GMT, retracing some of Tuesday's $2.46-gain.

London Brent crude eased 75 cents to $54.35.

Icy winter weather finally arrived in the U.S. Northeast last week, but demand remained subdued.

U.S. distillate demand, which includes heating fuel, fell 4.1 percent in the past four weeks compared to a year ago, the Energy Information Administration said.

Distillate stocks rose 700,000 barrels, confounding analysts' expectations for an 800,000 barrel decline.

"The distillate build was bearish. I expected a bigger kick up in demand given that the temperatures have dropped so dramatically in the last week," Tim Evans, analyst at Citigroup Global Markets, said.

Domestic crude stocks rose 700,000 barrels, while gasoline inventories climbed four million barrels.

EIA's bearish data helped offset some of the previous session's sharp gains.

Oil jumped 4.7 percent on Tuesday, the biggest daily gain since Nov. 20, on news the United States will build emergency oil reserves.

"The EIA numbers are obviously negative, but we believe the curde prices will remain between $50 to $55," Mike Fitzpatrick, vice president at Fimat USA, said.

The Bush administration said it planned to add 11 million barrels to the country's Strategic Petroleum Reserves (SPR) this spring at a rate of around 100,000 barrels per day (bpd).

"The SPR situation is only short-term supportive. That oil is being stored and does not disappear. In the longer term, it will probably help prices to stabilise at a lower level," Andrew Harrington, a resource analyst at ANZ bank, said.

Oil has fallen about 12 percent so far this month, leaving prices below what OPEC President Mohammed al-Hamli considered a reasonable price.

Hamli said on Tuesday a reasonable price for the group's crude basket was around $55 a barrel. OPEC's reference price is usually valued $5-6 below U.S. crude.

The producer group has all but ruled out an emergency meeting, as it believes prices will stabilise once the market feels the full effect of its 1.7 million bpd output reduction.