LONDON – Oil prices slid on Wednesday as the U.S. government reported a renewed rise in crude stocks, strengthening signals that higher OPEC (search) production was replenishing world supplies.
Downward pressure also came from Iraq's resumption of crude flows from its northern oilfields, boosting efforts to overcome sabotage attacks that have shackled the country's exports.
U.S. light crude dropped 52 cents to $37.73 a barrel on the New York Mercantile Exchange (search) and Brent crude was down 36 cents at $35.25.
Prices tumbled after the Energy Information Administration (search) reported that crude oil stocks rose by 2.5 million barrels last week to 305.4 million, the highest level in nearly two years.
Fuel stocks in the United States have been rising in recent weeks, helping to pull crude prices down from early June's 21-year highs above $42 a barrel.
OPEC producers, led by top world exporter Saudi Arabia, have raised output to try and cool prices and make up for repeated disruption to Iraqi supplies.
"Overall, it's good news that crude stocks are building which means we are beginning to see benefits of increased world oil production," said Phil Flynn, market analyst at Alaron Trading in Chicago.
A gradual recovery in Iraqi supplies -- at a complete standstill for six days until Monday because of sabotage -- also weighed on prices.
Iraq restarted exports from its northern Kirkuk field to Turkey's Mediterranean port at a rate of 200,000 barrels per day (bpd) after repairing an export pipeline that was attacked three weeks ago.
Persistent sabotage at Iraq's oil export facilities have held Iraq's oil exports below its pre-war export capacity of 2.2 million bpd.
Crude loadings from southern terminals were flowing at about one million bpd, barely half of the 1.8 million bpd exported before the attacks.
Iraq's export problems have strained the world oil supply system, leaving OPEC producers pumping close to full capacity to meet strong demand growth.
Traders kept a close eye on Norway where oil workers pledged to widen a strike and shut in around a quarter of output from the world's No. 3 crude exporter. Norway's striking OFS oil union said on Wednesday it would extend a strike at the weekend to halt about 715,000 bpd of Norway's three million bpd output.
The six-day stoppage has already cut 375,000 bpd of Norwegian supply, and the shortfall will deepen to 455,000 bpd overnight with the planned closure of an Exxon Mobil field.
Norway's government said it had no plans to intervene to halt the strike, which is over pension rights and demands for tighter restrictions on temporary labor.
Oslo has often invoked emergency laws to order workers back to their jobs when a large part of output is under threat.
Prices rose on Tuesday when ConocoPhillips refinery in Lake Charles, La. was forced to delay the restart of a shut gasoline-making unit.
The shutdown reignited fears that U.S. gasoline supplies could run tight in the early days of the summer vacation driving season.
The EIA reported that gasoline stocks fell by 800,000 barrels last week to 205.1 million, and are nine million barrels below the five-year average.
"We need to be building gasoline stocks a bit more than we have been," said analyst Jim Ritterbusch of Ritterbusch and Associates in Chicago.