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Oil recovers slightly after $1 drop on mild weather

Written by: Staff
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SYDNEY, Dec 5 (Reuters) Oil prices rose slightly on Tuesday as the threat of a further output cut by OPEC producers who meet next week was offset by milder weather forecasts and expected strong fuel stockpiles in the United States.

U.S. crude was trading 20 cents higher at .64 a barrel at 0415 GMT, trimming Monday's 99-cent fall. London's Brent crude was up 11 cents at .56.

''OPEC has signalled that it would be cutting quota when they meet next week but I think the market is basically shrugging its shoulders because it doesn't expect a significant amount of supply to be offline,'' said Andrew Harrington, a resource analyst at ANZ.

''The inventory level is still very high, there is no reason to start panicking.'' Analysts polled by Reuters expected a U.S. government report on Wednesday to show a modest 400,000-barrel decline in distillate stocks, which include heating fuel, but a moderate increase in crude inventories. S] Most OPEC ministers have said they still see the need for a further output cut when the cartel meets in Abuja next week and that, regardless of price, the market is oversupplied.

Oil prices were bolstered last week by a brief spell of cold weather in the U.S. Midwest. But prices swiftly eased after U.S. National Weather Service forecast for higher than usual temperatures next week in the U.S. Northeast, the key heating oil-consuming region, after frigid weather this week.

Analysts said prices were likely to fall further this week, weighed down by ongoing warmer weather forecasts and slowing signs in the U.S. economy.

Data from the U.S. Institute of Supply Management on Friday showed November U.S. manufacturing activity contracted for the first time in 3-{ years -- sparking fears that the world's largest economy was slipping into a recession.

Analysts said trading volumes could also be thin as traders await the OPEC meeting on Dec. 14.

The ministers of the producer group are increasingly leaning towards additional production cuts to reduce global inventories after falls in oil prices from record highs above hit in summer.

Some OPEC ministers have also said that the weakness of the dollar, which has shed 7 percent this year, may erode oil producers' purchasing power, providing another argument for possible supply curbs.

REUTERS CS DS1156

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