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THE NEW YORK TIMES: Oil Falls on Higher US Gasoline Stocks, Inflation

Oil Falls on Higher US Gasoline Stocks, Inflation

Published: May 17, 2006

Filed at 11:51 p.m. ET

SEOUL (Reuters) – Oil prices fell toward $68 a barrel on Thursday, pressured by rising U.S. gasoline inventories and concern that high energy costs are leading to inflation that could slow demand.

U.S. light crude oil (CLc1) was trading 18 cents lower at $68.51 a barrel by 0311 GMT, extending Wednesday's 84-cent loss. London Brent crude (LCOc1) slipped 12 cents to $68.92.

“Rising U.S. gasoline stocks are providing the market with relief, easing some uncertainty over the supply of the motor fuel ahead of the driving season,'' said Koo Cha-kwon, head of global oil research at Korea National Oil Corp. (KNOC).

Gasoline futures (HUc1) in New York slipped further after leading losses on Wednesday, when U.S. government data showed domestic motor fuel stocks gained 1.3 million barrels last week on high imports, the third week of rises.

U.S. demand for crude and petroleum products in April fell by 1.5 percent from a year earlier, with high pump prices cutting gasoline use by 1.9 percent, industry figures showed on Wednesday.

“U.S. policies aimed at more use of alternative motor fuels like ethanol in the face of soaring gasoline prices are also behind weaker crude prices,'' Koo added.

U.S. Senate Democrats on Wednesday offered a plan to cut U.S. oil import dependence 40 percent by 2020 by requiring more use of alternative motor vehicle fuels like ethanol.

Prices were also pressured by U.S. data on Wednesday showing that the high cost of raw materials was pushing up the cost of living. Core consumer prices rose 0.3 percent in April, higher than expected and feeding inflation worries.

In the world's third largest oil consumer Japan, a Reuters poll showed on Thursday high oil prices are putting a squeeze on company profits, with firms still struggling to pass on greater energy costs to consumers and trying to find ways to save energy.

The less positive demand outlook led the Organization of the Petroleum Exporting Countries (OPEC) on Wednesday to trim its forecast for global oil demand growth in 2006 by 60,000 barrels per day, though the cartel said costly oil has failed to slow energy-hungry China's expanding fuel use.

OPEC has been pumping at near full tilt in a bid to calm prices but supply disruptions in Nigeria and worries over Iran's nuclear dispute with the West helped drive oil to a record above $75 in late April. Prices are still up 12 percent this year.

Iran's President Mahmoud Ahmadinejad on Wednesday rebuffed the latest attempt by the European Union to ease the dispute, which analysts fear could affect oil exports in the event of any potential sanctions against Tehran.

In Nigeria's oil heartland activists have given Royal Dutch Shell (RDSa.L) promising signals over a possible return to oilfields it was forced to abandon after a series of militant attacks three months ago. Shell has lost 455,000 bpd of production since February.

The leader of a militant group told Reuters on Wednesday he had held several meetings with Shell executives in recent days and had told them his community would allow the company back if it met key development demands.

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