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Oil slips as market seen capped by Europe crisis

Published 09/13/2011, 10:53 PM
Updated 09/13/2011, 10:56 PM
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* US crude slips from 6-mth high above $90.50/bbl

* US crude faces resistance at $91/bbl -technicals

* Coming Up: EIA U.S. oil inventory report; 1430 GMT

By Alejandro Barbajosa

SINGAPORE, Sept 14 (Reuters) - Oil fell on Wednesday, pulling U.S. crude off six-week highs, as investors saw little upside from declining inventories in an environment where the euro zone debacle is taking precedence over tightening supply.

U.S. crude shed 79 cents to $89.42 a barrel after touching $90.52 on Tuesday, the highest intraday price since Aug. 4. Brent crude fell 31 cents to $111.58.

The euro zone crisis is capping gains in oil prices, said traders including Ken Hasegawa, a commodity derivatives manager at Japan's Newedge brokerage, while forecasters are lowering their demand growth outlooks for this year and next.

"Fundamentally, this market should be declining further," Hasegawa said. "We are seeing a decline in inventories, but that is not a serious matter, while the financial markets are a very concerning matter. There is no reason for crude to go higher, so we are seeing profit-taking."

U.S. crude stockpiles fell a larger-than-expected 5.1 million barrels last week as Tropical Storm Lee disrupted output in the oil-rich Gulf of Mexico, trade group the American Petroleum Institute reported on Tuesday. Analysts polled by Reuters had projected a 3.1-million-barrel drop.

The inventory drop, related mostly to seasonal weather events, is helping U.S. crude benchmark West Texas Intermediate (WTI) narrow its discount to Brent, which is now trading about $22 higher following a record premium above $27 last week.

Lee shut in nearly 5 million barrels of U.S. oil production from Sept. 3 to 9, according to Reuters estimates based on government data.

Distillates, which include heating oil and diesel, rose 67,000 barrels, compared with analyst forecasts of a 700,000 barrel gain. Only gasoline painted a more bearish picture, with stocks up 2.8 million barrels, compared with analyst projections for a 500,000-barrel drop.

But on a longer-term basis, the grim outlook for the global economy is weighing on oil prices.

World oil consumption will increase more slowly than expected this year and next as the pace of global economic growth eases, the International Energy Agency (IEA) said on Tuesday.

In its monthly oil market report, the Paris-based agency said financial and economic headwinds were gathering momentum and significant economic threats skewed the demand side risk to the downside.

"There is still a lot of uncertainty in Europe and the issue will not be resolved soon, it will continue for the next three to six months," Hasegawa said.

The IEA cut its estimate of global oil demand growth this year by 160,000 barrels per day (bpd) to 1.04 million bpd and trimmed its 2012 demand growth estimate by 190,000 bpd to 1.42 million bpd.

In other markets, a rebound in Asian stocks and the euro stalled and gold edged up on Wednesday as investors waited for convincing signs of progress on taming the euro zone debt crisis. [ID:nL3E7KE00V

Global markets have been roiled since the end of July by the twin fears of renewed recession in the United States and Europe's protracted debt woes, which have seen bailouts for Greece, Ireland and Portugal and sparked fears of a new banking crisis.

The euro held on to modest gains against the greenback in Asia on Wednesday, as bears trimmed short positions just in case EU leaders surprised by making progress on Greece in a conference call later in the day. (Editing by Clarence Fernandez)

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