Oil eases on warm weather, after gains on US stocks

SEOUL, Dec 29 (Reuters) Oil prices eased toward on Friday, reversing gains posted on a steeper than expected fall in U.S. crude stocks as exceptionally mild winter weather led the market toward its first annual loss since 2001.

U.S. light crude futures fell 11 cents to .32 a barrel by 0251 GMT, keeping just above the one-month low of .05 hit on Thursday.

Brent rose 8 cents to .60.

Oil climbed 19 cents on Wednesday after weekly oil data showed an 8.1 million barrels drop in U.S. commercial crude stocks last week, mostly due to delayed deliveries to refiners on the Texas and Louisiana coasts amid foggy weather.

The fall was much steeper than analysts' prediction of 1.8 million barrels, but was not enough to shift traders' focus away from the dampening effect of warm weather on oil demand.

DTN Meteorlogix on Thursday forecast that U.S. Northeast temperatures hovering as much as 10 degrees Farenheit above normal would ease to around 0-4 degrees F warmer by Sunday. Many forecasters expect mild conditions to linger until spring.

''The prices are more affected by demand for heating oil, which will remain low,'' said Tetsu Emori, chief strategist at Mitsui Bussan Futures.

Heating oil stocks fell by 800,000 barrels in the week to Dec. 22 from the week before, lifting January heating oil by 1.43 cents, or 0.9 percent.

U.S. gasoline inventories rose 3 million barrels, much more than analysts' forecast of 700,000 barrels, while distillate stocks rose 500,000 barrels, in line with forecasts.

BAD YEAR FOR FUNDS Front month U.S. crude now stands about 1 percent lower than it did at the start of the year, its first annual decline since dropping from .80 to below a barrel during 2001. Prices soared by 34 percent in 2004 and 41 percent last year.

Average prices have risen this year, however, to stand at .25 a barrel versus .70 in 2005 thanks to a mid-year rally that pushed the market to a record .40 a barrel in July.

The average price is almost a barrel higher than consensus forecasts in January, at least the fourth year in a row that analysts have failed to predict the market's strength.

Despite their bad luck with bullish oil, analysts are again predicting prices will ease next year. A Reuters poll of over 30 analysts forecasts an average .48 for 2007.

That may be more bad news for pension and investment funds, who are likely to have suffered their worst oil returns since they began ploughing an estimated 0-billion-plus into commodity markets five years ago in an effort to diversify.

The energy-heavy Goldman Sachs Commodities Index (GSCI) Total Return index, one of the main vehicles used by passive investors to gain commodities exposure, is down 15 percent this year after averaging gains of about 24 percent since 2002.

Even the Reuters-Jefferies CRB index, which has fared better as it is spread more evenly among 19 commodities, is down 3 percent this year after four years of gains.

REUTERS SB PM1020