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Oil prices slump on surprise drop in US energy inventories

World oil prices slumped on Friday, retreating from hefty gains made this week on a surprise drop in US energy inventories.

Traders were also keen to book profits ahead an OPEC meeting in Vienna next week.

New York's main oil futures contract, light sweet crude for delivery in April, fell US$1.59 to close at US$60.05 a barrel.

In London, Brent North Sea crude for April delivery sank US$1.20 to settle at US$61.13 a barrel.

Even with the declines, prices remained near recent highs, analysts said.

"Strong demand conditions have combined with declining supply and the inevitable result is rising prices," Fimat analyst John Kilduff said in New York, noting a variety of refinery outages around the world.

In London, Sucden analyst Michael Davies said investors were "locking in profits before the weekend after strong gains on the back of bullish US inventories."

The US Department of Energy had revealed on Wednesday that American stocks of crude oil, distillates and gasoline fell across the board in the week to March 2.

US crude oil inventories fell by 4.8 million barrels, compared with market expectations for an increase of 1.8 million.

Gasoline reserves tumbled 3.8 million barrels -- more than double the predicted fall of 1.5 million.

Distillate inventories, including heating oil and diesel, fell by 1.3 million barrels, which was less than analysts had forecast.

Following the report, crude futures bounced back from Monday's heavy losses that came amid turmoil on world stock markets.

Steve Rowles, a Hong Kong-based analyst with CFC Seymour Securities, said that traders remained cautious despite a recovery in equity markets.

"Some positive sentiment has returned" to the oil market, Rowles said.

"The [risk] aversion is not as strong as a couple of days ago ... Overall, I think a more upbeat trend is back in the market for sure, but there's still caution," he said.

Traders' attention was turning to OPEC's upcoming production meeting in Vienna on Thursday. Analysts are not expecting any further cuts from the powerful cartel, which produces more than a third of global oil supplies.

"With the price above the US$60 level, there is no reason for any production cuts," Rowles said.

Last November, the cartel cut its combined output by 1.2 million barrels per day (bpd) to 26.3 million bpd in an attempt to lift sagging prices. It then agreed another output cut of 500,000 bpd, which began on Feb. 1.

"OPEC, still struggling to implement the 1.7 million bpd in production cuts mandated at their last two meetings, is not expected to up that figure when they again meet on March 15," Fimat's Kilduff said.
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