Oil eases after rally on U.S. fuel, Mideast tension

By Staff
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LONDON, June 15 (Reuters) Oil eased to below a barrel on Friday after two days of gains sparked by worries of low fuel supplies from creaking U.S. refineries and an upsurge of violence in the Middle East.

A weekly U.S. report on Wednesday showed gasoline stocks failed to build up and heating oil inventories fell. That sparked concern U.S. refiners, running at 89 percent of capacity, would be unable to make enough fuel.

''We're having a little setback today but it's nothing to speak of,'' said Christopher Bellew, senior vice president, Bache Commodities. ''Gasoline is very strong because refinery runs are at 89 percent and stocks are below average.'' Brent crude, now more representative of the global market, was off 40 cents at .96 a barrel by 1209 GMT, while U.S.

crude eased 10 cents to .55.

Markets were rattled further after Hamas Islamist fighters took control of Gaza after six days of civil war.

Dealers weighed the potential of a wider conflict drawing in neighbouring Middle East states that pump a quarter of the world's oil.

Tension was already high over supply disruptions in Nigeria, Iran's atomic programme and low supplies of gasoline in top fuel consumer the United States.

U.S. gasoline stocks were running about 6 percent below a year ago following a prolonged stretch of refinery outages, while heating oil inventories slumped to levels one-third below last year.

''Both markets are very bullish,'' said Makoto Takeda, of Tokyo's Bansei Securities.

With oil demand rising, the stage was set for even further tightening, according to the International Energy Agency (IEA).

The adviser to 26 industrialised countries has repeatedly called on the Organization of the Petroleum Exporting Countries to pump more crude to avoid a supply crunch later this year.

OPEC insists the problem lies mostly with U.S. refinery bottlenecks. The 12-member producer group said on Thursday that current supplies were sufficient and there was no need to boost output at the moment.

Oil is up from about in January though it remains below the all-time highs hit in 2006.

Nearly a year ago, U.S. crude reached a record .40 on fears that fighting between Israel and Lebanese Hizbollah guerrillas could spread to Middle East oil producers.

REUTERS PBB HT2035

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