WASHINGTON – Oil fell nearly 2 percent Wednesday after the government said gasoline and heating fuel supplies rose in the United States, the world's top consumer of petroleum.
Iran's response to incentives proposed by six world powers over a nuclear dispute "falls short" of the conditions set by the U.N. Security Council, a U.S. State Department spokesman said. Iran's intransigence, however, had already been factored into the market, traders said.
U.S. crude settled at $71.76 a barrel, down $1.34, or 1.8 percent, while London Brent crude last traded $1.10 weaker at $72.14.
U.S. fuel supplies jumped as refiners ran harder, while crude oil inventories fell less than expected.
"We really do get a bearish message off this," said Tim Evans, analyst at Citigroup Global Markets in New York. "Inventories aren't necessarily at a high level, but the chance for stocks to be depleted by heavy driving season demand looks like it's dwindling."
U.S. gasoline futures settled about 8 cents weaker at nearly $1.86 a gallon after falling to $1.83, near the lowest level in nearly five months.
Iran said its reply on Tuesday to a package of incentives proposed by the six world powers contained ideas that would allow serious talks, but it was unclear whether the response would avert United Nations sanctions.
The U.N. Security Council has demanded Iran halt its nuclear work by a deadline of Aug. 31 or it could face sanctions, which traders fear could lead Iran to disrupt oil supplies.
There has been no sign Tehran would agree to the demand to halt uranium enrichment, although one EU diplomat said Iran might accept suspension while negotiations took place.
Relatively healthy supply levels as well as a cease-fire between Israel and Lebanon, which eased the threat of violence spreading in the oil-producing Middle East, has helped to lower prices from a record of $78.65 hit earlier this month.
But the market is still concerned about the shut in of at least 508,000 bpd, or about a sixth, of Nigeria's output capacity because of militant attacks and pipeline leaks.
The president of the Petroleum and Natural Gas Senior Staff Association of Nigeria Wednesday said oil workers' unions might pull all members from the Niger Delta over safety fears following a spate of abductions by militants and a military crackdown.
Traders were also keeping an eye on Tropical Storm Debby, the fourth of the U.S. 2006 hurricane season.
But forecasters were predicting it would not threaten oil and gas infrastructure in the Gulf of Mexico, where hurricane devastation last year sent oil prices to then record highs.
The Organization of the Petroleum Exporting Countries meets next month in Vienna to reconsider its output policy. The latest signs have led to expectations that the group will leave output unchanged.
"From now until the meeting, we are going to watch the market and then we can decide, but I don't think what is taking place in the market indicates any cut," Shokri Ghanem, head of Libya's national oil company, told Reuters Wednesday.