Oil holds $ 55 after plunge on stock build, weather

SINGAPORE, Jan 5 (Reuters) Oil held above on Friday after plunging nearly 9 percent over the past two days, as traders fret over growing U.S. fuel inventories and unusually mild temperatures in the world's top energy consumer.

The hefty losses in oil as well as in other commodities also may have been triggered by funds switching into other assets.

U.S. light crude traded up 11 cents at .70 a barrel by 0251 GMT, after sliding by SINGAPORE, Jan 5 (Reuters) Oil held above $55 on Friday after plunging nearly 9 percent over the past two days, as traders fret over growing U.S. fuel inventories and unusually mild temperatures in the world's top energy consumer.

The hefty losses in oil as well as in other commodities also may have been triggered by funds switching into other assets.

U.S. light crude traded up 11 cents at $55.70 a barrel by 0251 GMT, after sliding by $2.73 on both Wednesday and Thursday. This marks the biggest two-day percentage drop since December 2004, and took the market to its lowest settlement since June 15, 2005.

London Brent crude rose 13 cents to $55.24 after sliding $2.85 on Thursday.

''Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead,'' said Barclays Capital.

''This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower.'' Unseasonably mild weather in the U.S. Northeast, the top heating oil consumer region, and in Europe, has undercut demand for fuel, pulling down prices since late December.

U.S. government data on Thursday showed a 2 million barrel rise last week in distillate stocks, including heating oil Gasoline stocks also rose by a hefty 5.6 million barrels, much more than the 1.5 million barrels forecast by analysts, overshadowing a 1.3 million barrel fall in crude stocks.

The sharp price slide also raised market speculation that a hedge fund might be taking large losses on an oil position, similar to the huge natural gas bet that sank the multi-billion dollar Amaranth fund in 2006.

Bearish oil prices raised concern for some OPEC members.

A top Iranian oil official said on Thursday that OPEC was keeping a watchful eye on fund activity in the markets, although OPEC's oil supply cut of 500,000 barrels per day from Feb. 1, adding to a cut of 1.2 million bpd from November, should keep markets balanced until the 12-member group meets on March 15.

''We have to see whether the funds overreact...If that's the case, we may have to consider meeting (before March),'' said Iran's OPEC Governor Hossein Kazempour Ardebili.

Coupled with hefty losses in oil, U.S. copper futures settled at a nine-month low, while the Reuters/Jefferies CRB Index, which measures prices of 19 commodity futures, closed near a 20-month low on Thursday.

However, weather forecasters said that a stretch of unusual warmth in the eastern U.S. could end by mid-January. An Arctic air mass is likely to form over western Canada next week and seep into the U.S. Midwest before spreading into the East and Southeast by mid-January, forecasters said.

REUTERS MQA HS1029 .73 on both Wednesday and Thursday. This marks the biggest two-day percentage drop since December 2004, and took the market to its lowest settlement since June 15, 2005.

London Brent crude rose 13 cents to .24 after sliding SINGAPORE, Jan 5 (Reuters) Oil held above $55 on Friday after plunging nearly 9 percent over the past two days, as traders fret over growing U.S. fuel inventories and unusually mild temperatures in the world's top energy consumer.

The hefty losses in oil as well as in other commodities also may have been triggered by funds switching into other assets.

U.S. light crude traded up 11 cents at $55.70 a barrel by 0251 GMT, after sliding by $2.73 on both Wednesday and Thursday. This marks the biggest two-day percentage drop since December 2004, and took the market to its lowest settlement since June 15, 2005.

London Brent crude rose 13 cents to $55.24 after sliding $2.85 on Thursday.

''Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead,'' said Barclays Capital.

''This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower.'' Unseasonably mild weather in the U.S. Northeast, the top heating oil consumer region, and in Europe, has undercut demand for fuel, pulling down prices since late December.

U.S. government data on Thursday showed a 2 million barrel rise last week in distillate stocks, including heating oil Gasoline stocks also rose by a hefty 5.6 million barrels, much more than the 1.5 million barrels forecast by analysts, overshadowing a 1.3 million barrel fall in crude stocks.

The sharp price slide also raised market speculation that a hedge fund might be taking large losses on an oil position, similar to the huge natural gas bet that sank the multi-billion dollar Amaranth fund in 2006.

Bearish oil prices raised concern for some OPEC members.

A top Iranian oil official said on Thursday that OPEC was keeping a watchful eye on fund activity in the markets, although OPEC's oil supply cut of 500,000 barrels per day from Feb. 1, adding to a cut of 1.2 million bpd from November, should keep markets balanced until the 12-member group meets on March 15.

''We have to see whether the funds overreact...If that's the case, we may have to consider meeting (before March),'' said Iran's OPEC Governor Hossein Kazempour Ardebili.

Coupled with hefty losses in oil, U.S. copper futures settled at a nine-month low, while the Reuters/Jefferies CRB Index, which measures prices of 19 commodity futures, closed near a 20-month low on Thursday.

However, weather forecasters said that a stretch of unusual warmth in the eastern U.S. could end by mid-January. An Arctic air mass is likely to form over western Canada next week and seep into the U.S. Midwest before spreading into the East and Southeast by mid-January, forecasters said.

REUTERS MQA HS1029 .85 on Thursday.

''Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead,'' said Barclays Capital.

''This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower.'' Unseasonably mild weather in the U.S. Northeast, the top heating oil consumer region, and in Europe, has undercut demand for fuel, pulling down prices since late December.

U.S. government data on Thursday showed a 2 million barrel rise last week in distillate stocks, including heating oil Gasoline stocks also rose by a hefty 5.6 million barrels, much more than the 1.5 million barrels forecast by analysts, overshadowing a 1.3 million barrel fall in crude stocks.

The sharp price slide also raised market speculation that a hedge fund might be taking large losses on an oil position, similar to the huge natural gas bet that sank the multi-billion dollar Amaranth fund in 2006.

Bearish oil prices raised concern for some OPEC members.

A top Iranian oil official said on Thursday that OPEC was keeping a watchful eye on fund activity in the markets, although OPEC's oil supply cut of 500,000 barrels per day from Feb. 1, adding to a cut of 1.2 million bpd from November, should keep markets balanced until the 12-member group meets on March 15.

''We have to see whether the funds overreact...If that's the case, we may have to consider meeting (before March),'' said Iran's OPEC Governor Hossein Kazempour Ardebili.

Coupled with hefty losses in oil, U.S. copper futures settled at a nine-month low, while the Reuters/Jefferies CRB Index, which measures prices of 19 commodity futures, closed near a 20-month low on Thursday.

However, weather forecasters said that a stretch of unusual warmth in the eastern U.S. could end by mid-January. An Arctic air mass is likely to form over western Canada next week and seep into the U.S. Midwest before spreading into the East and Southeast by mid-January, forecasters said.

REUTERS MQA HS1029