Oil extends losses after US crude supplies swell

SYDNEY, Apr 13 (Reuters) Oil extended losses on Thursday, pulling back from this week's peaks of nearly after U.S. crude stockpiles swelled to their highest in almost eight years, but prices held above on tensions over Iran's nuclear aims.

May U.S. light crude fell 34 cents to .28 a barrel by 0236 GMT, adding to Wednesday's 36-cent losses that came after an intra-day peak of .60, its highest since Sept 2. London Brent crude for June fell 31 cents to .55.

''We're being bounced around as robust crude supplies take the cream off a market driven up by geo-political concerns,'' said Justin Smirk, senior economist at Westpac in Sydney.

The U.S. Energy Information Administration (EIA) said on Wednesday crude inventories in U.S. commercial storage rose by 3.2 million barrels last week to 346 million, more than twice the rise forecast in a Reuters poll and their highest level since 1998.

But with forward contracts for crude delivery later in the year trading near records above , analysts say losses will be limited by supply concerns over Iran and summer gasoline as well as buying from fund investors. ''The highs are getting higher and so are the lows,'' said Westpac's Smirk. ''The only way to break that cycle is a negative demand shock or a positive supply shock, neither of which seem likely in the short to medium term.'' Oil is riding a rally that has seen it jump about a barrel since the start of 2002, with investors driving commodities toward record highs and the global economy and growing demand so far proving resilient to soaring fuel costs.

SUPPLY NEEDED The EIA said U.S. gasoline inventories fell last week by 3.9 million barrels, a deeper fall than expected as refineries are upgraded to eliminate polluting additive MTBE in favour of ethanol.

The fear of shortages as demand rallies into the summer driving season has been heightened by the loss of around a quarter of Nigeria's gasoline-rich crude to rebel attacks.

And attention has focused on Iran, which says it has begun enriching uranium for a nuclear power industry, invoking the ire of the United States which fears it is producing a bomb.

U.N. diplomats said on Wednesday the Security Council is unlikely to take substantive action on Iran before the end of April, when it receives a report from International Atomic Energy Agency (IAEA).

The IAEA's leader Mohamed ElBaradei holds talks in Tehran on Thursday and has called on the Islamic state to suspend enrichment and return to diplomatic negotiations with the West.

Meanwhile, demand growth continues, with the International Energy Agency saying the Organization of the Petroleum Exporting Countries, already pumping near capacity, would have to pump more in 2006 to fill a gap from Russia and other suppliers.

Most OPEC members are already producing close to their limit and the group has missed its output target of 28 million barrels per day (bpd) every month this year, mainly on Nigeria.

The IEA pitched 2006 demand for OPEC oil even higher -- at 29.4 million bpd.

REUTERS SY RAI0944