Oil hovers near flat, warm weather weighs

LONDON, Dec 27 (Reuters) Oil prices hovered close to flat on Wednesday after losses of more than a dollar the previous session, as mild weather in major consuming nations slashed demand for heating fuel.

U.S. crude fell eight cents to .02 a barrel, while Brent rose seven cents to .17 by 1107 GMT.

Following an exceptionally mild Christmas, the National Weather Service said on Tuesday heating oil demand this week would be 23 percent below normal in the United States, the world's biggest energy consumer.

The warm temperatures wiped out initial gains on Tuesday that were spurred by concern Iran might disrupt oil flows in response to U.N. sanctions against the oil producing nation.

''The mild weather that has been curbing demand for winter fuel in the United States is still the key to prices, despite geopolitical and security issues,'' said Takamitsu Shimizu, strategist at Mitsui Bussan Futures.

For the next indication of the state of U.S. fuel stocks, traders will be looking to government inventory data to be released on Thursday, a day later than usual because of Monday's Christmas holiday.

Distillate stocks, which include heating oil, were expected to have risen by 200,000 barrels, according to a Reuters survey of analysts. [EIA/S] But crude inventories were expected to fall by 600,000 barrels following shipping disruption caused by fog.

Weather forecaster WSI Corp. said on Tuesday the above average temperatures would probably linger in the northern part of the United States for the rest of the winter. [ID:nN26461306] Warm temperatures have also cut fuel demand in Japan, the world's third biggest oil consumer, where stocks of kerosene, used for heating, are more than a third higher than a year ago. Last year stocks plunged when Japan experienced the coldest December for two decades.

The Organization of the Petroleum Exporting Countries, concerned about high inventory levels, agreed this month to implement an output cut of 500,000 barrels per day from Feb. 1, adding to a reduction of 1.2 million bpd effective from Nov. 1.

In the first sign OPEC intends to abide by the second set of restrictions, Abu Dhabi's state oil firm, the main producer in the United Arab Emirates, said it would cut exports of nearly half of its crude grades by 3-5 percent in February.

Analysts say OPEC's action has stabilised the market and some predict new investment money could enter early in January.

Others, however, say a U.S. economic slowdown and rising levels of non-OPEC oil supply will pull down prices.

REUTERS KR PM1641