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Oil eases towards $72 on U.S. inflation concerns

Written by: Staff
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SINGAPORE, June 6 (Reuters) Oil edged lower on Tuesday as traders balanced the risk for a supply disruption in the Middle East with worries over inflation and slower U.S. economic growth as well as rising gasoline stockpiles.

U.S. light crude for July delivery traded down 44 cents at .16 a barrel by 0420 GMT, after paring gains on Monday to 27 cents.

London Brent crude eased 39 cents to .98 a barrel.

''The main factor for prices moving lower is (U.S. Federal Reserve Chairman) Bernanke's comment on the risk of inflation in the U.S.,'' said Naohiro Niimura, vice president of derivatives at Mizuho Corporate Bank in Tokyo.

Gains of over a dollar on Monday were dampened after Bernanke said that the Fed needed to be vigilant to ensure inflation stays under control even as the economy starts to show a slower pace of growth.

''U.S. bond and stock markets fell after the Bernanke comment -- the main oil market drivers are now hedge funds and pension funds and their key battleground is equity and bond markets, so if they lose money there they like to take profits elsewhere such as on U.S.

crude and metals,'' added Niimura.

Gold fell more than 1 percent on Tuesday on a strong dollar and profit taking after heading higher overnight as oil prices jumped.

Analysts have been concerned that rising oil prices, which have risen 19 percent this year and hit a record-high of .35 in April on fund investor buying and geopolitical tensions, could take the shine off oil demand.

Prices were boosted on Monday after Iran's Ayatollah Ali Khamenei, supreme leader of the world's fourth-largest oil exporter, said that oil flows in the region could be endangered if the United States made a ''wrong move'' against Tehran.

The White House called Iran's threat to disrupt oil supplies ''theoretical'' on Monday, and said Tehran should be given time to consider a package of incentives from major powers in exchange for curbing its nuclear programme.

EU foreign policy chief Javier Solana is set to present this proposal to Tehran on Tuesday. Iran's President Mahmoud Ahmadinejad has said that Iran would consider the proposals but insisted the crux of the package -- that Tehran stops uranium enrichment -- was unacceptable.

RECOVERING SUPPLY Further pressure on prices came from a U.S. government report on Monday showing offshore crude production has risen 115,000 barrels per day (bpd) since early May as oil companies recovered from last year's devastating hurricanes.

Storms and repairs hit production at five U.S. refineries last week, though Valero Energy Corp. said on Monday its Corpus Christi plant had returned as expected, while BP was preparing a restart for a gasoline unit at its giant Texas plant.

U.S. gasoline supplies are expected to have risen last week for the sixth week in a row as refineries step up production to meet peak summer demand, with analysts in a Reuters survey predicting an average 1.3 million-barrel build.

''Assuming higher refinery runs and a sustained high simple yield, gasoline production should rise,'' said JPMorgan in a report.

''We expect gasoline imports will stay robust... demand should be flat to slightly lower from the prior week.'' Crude stocks are seen slipping 400,000 barrels in government data due later on Wednesday, though they remain 4 percent up from the same time last year thanks to a flood of imports.

OPEC crude producers agreed last week to leave output limits unchanged and keep pumping at near full rates in a bid to ease high prices.

REUTERS CS RN1124

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