Oil prices fell more than $1 today towards $38 a barrel as front-month contracts near expiry, paring a 14 per cent gain a day earlier on government data showing an unexpected draw in US crude stocks.
US crude futures for March delivery, which expire later in the day, fell $1.05 cents to $38.43 a barrel by 7.54am, after posting in the previous session the biggest settlement gain since December 31st.
April delivery contracts fell 99 cents to $39.19, while London Brent for April delivery dropped 69 cents to $41.30 a barrel.
"There's a bit of profit taking. Traders were looking for any reason to buy up. If we see another piece of bad economic news prices will come back down again," said Gerard Rigby, an analyst at Fuel First Consulting in Sydney.
In its monthly report today, the Bank of Japan reiterated that economic conditions were deteriorating rapidly - its bleakest diagnosis ever - and would likely continue to worsen for the time being.
Japan has been hit particularly hard by the global slump, triggered by the US housing market meltdown, due to its heavy dependence on exports and chronically weak domestic consumption.
Crude inventories in the United States, the world's top consumer, fell slightly last week on lower imports and higher demand, the US Energy Information Administration said, snapping seven-straight weeks of builds against market expectations.
The bullish oil data countered pessimism in the US stock market, where the Dow industrials closed at their lowest in more than six years on a gloomy jobs report and fears that banks could be nationalised.
Crude prices have fallen nearly $110 a barrel from the peaks hit last July as the worsening economic crisis bites into oil demand, prompting the Organization of Petroleum Exporting Countries (OPEC) to agree to deep output cuts in the second half of 2008 to combat the price slide.
In the latest indication that OPEC members are complying with the agreed cuts, Kuwait notified at least two buyers in Asia that it will keep curbs of 5 per cent below contracted volumes for April-June term crude oil supplies, steady from March, trade sources said.
US economic reports due out later in the day include the consumer price index and real earnings for January, as well as the Economic Cycle Research Institute's (ECRI) weekly index of economic activity.
Reuters