Oil holds above $66 after US gasoline stock fall

SINGAPORE, Mar 30 (Reuters) Oil prices inched lower but held above on Thursday after a steeper-than-expected fall in gasoline stocks in the United States ahead of peak summer demand.

U.S. light crude traded 22 cents down at .23 a barrel by 0344 GMT, after gaining 38 cents on Wednesday to reach the highest level since early February. London Brent crude traded 9 cents lower at .46 a barrel.

Prices have gained more than SINGAPORE, Mar 30 (Reuters) Oil prices inched lower but held above $66 on Thursday after a steeper-than-expected fall in gasoline stocks in the United States ahead of peak summer demand.

U.S. light crude traded 22 cents down at $66.23 a barrel by 0344 GMT, after gaining 38 cents on Wednesday to reach the highest level since early February. London Brent crude traded 9 cents lower at $65.46 a barrel.

Prices have gained more than $2 in the past two days as traders are worried about U.S. fuel stockpiles against a backdrop of further threats to reduced Nigerian supplies and tension over Iran's nuclear programme.

''Given the market's concern about summer gasoline supply availability, this week's inventory decline should play in to bullish sentiment,'' said Merrill Lynch.

Prices were dragged higher by a sharp 5.4 million-barrel drop in gasoline stocks amid slow refinery production, which boosted gasoline futures in New York to a five-month high.

Gasoline inventories remain about 500,000 barrels above last year, but have have thinned from seven-year highs reached earlier in 2006, U.S. government figures showed on Wednesday.

Traders are concerned over potential shortages during specification changes.

''While the reported gasoline stockdraw was notable, it's worth noting that stocks typically draw down in March,'' said JPMorgan. ''The drawdowns typically reflect destocking of winter grade gasoline in preparation for summer grade.'' Price gains were tempered by a larger-than-expected 2.1 million-barrel build in U.S. crude oil stockpiles, taking them to the highest level in about seven years.

But disruptions to crude supplies and geopolitical worries have helped keep oil above $60 a barrel for more than a month.

The U.N. Security Council approved a statement on Wednesday urging Tehran to suspend uranium enrichment efforts that the West suspects are part of a weapons programme, with the text making concessions to China and Russia who were anxious to avoid language that might be used to press for sanctions against Iran.

Iran remained defiant, saying it does not want nuclear arms but will not give up its right to nuclear energy, the country's U.N. ambassador said after the Security Council statement, which does not threaten punitive measures.

Still traders fear Tehran could retaliate to any potential sanctions by cutting oil supplies. Foreign ministers from the five permanent Council members will meet on Thursday to map out strategy on Iran.

Refinery supplies in France returned to normal on Wednesday after a strike that lightly reduced operations at some plants in a country that exports excess gasoline to the United States.

Dealers are also watching Nigeria, where President Olusegun Obasanjo has called a meeting with groups from the oil-producing Niger Delta to try to tackle militant attacks that have cut 26 percent of output from the world's eighth-largest crude exporter.

REUTERS CH KP1053 in the past two days as traders are worried about U.S. fuel stockpiles against a backdrop of further threats to reduced Nigerian supplies and tension over Iran's nuclear programme.

''Given the market's concern about summer gasoline supply availability, this week's inventory decline should play in to bullish sentiment,'' said Merrill Lynch.

Prices were dragged higher by a sharp 5.4 million-barrel drop in gasoline stocks amid slow refinery production, which boosted gasoline futures in New York to a five-month high.

Gasoline inventories remain about 500,000 barrels above last year, but have have thinned from seven-year highs reached earlier in 2006, U.S. government figures showed on Wednesday.

Traders are concerned over potential shortages during specification changes.

''While the reported gasoline stockdraw was notable, it's worth noting that stocks typically draw down in March,'' said JPMorgan. ''The drawdowns typically reflect destocking of winter grade gasoline in preparation for summer grade.'' Price gains were tempered by a larger-than-expected 2.1 million-barrel build in U.S. crude oil stockpiles, taking them to the highest level in about seven years.

But disruptions to crude supplies and geopolitical worries have helped keep oil above a barrel for more than a month.

The U.N. Security Council approved a statement on Wednesday urging Tehran to suspend uranium enrichment efforts that the West suspects are part of a weapons programme, with the text making concessions to China and Russia who were anxious to avoid language that might be used to press for sanctions against Iran.

Iran remained defiant, saying it does not want nuclear arms but will not give up its right to nuclear energy, the country's U.N. ambassador said after the Security Council statement, which does not threaten punitive measures.

Still traders fear Tehran could retaliate to any potential sanctions by cutting oil supplies. Foreign ministers from the five permanent Council members will meet on Thursday to map out strategy on Iran.

Refinery supplies in France returned to normal on Wednesday after a strike that lightly reduced operations at some plants in a country that exports excess gasoline to the United States.

Dealers are also watching Nigeria, where President Olusegun Obasanjo has called a meeting with groups from the oil-producing Niger Delta to try to tackle militant attacks that have cut 26 percent of output from the world's eighth-largest crude exporter.

REUTERS CH KP1053