* Oil eases back on concerns overall fuel demand still soft
* U.S. economic indicators lacklustre
* Breakdown in equities and commodities correlation
By Ramthan Hussain
SINGAPORE, Oct 1 (Reuters) - Oil fell below $70 on
Thursday, pulling back from the more than 5 percent gain a day
ago on worries that a rise in U.S. crude and distillate stocks
signals weak demand when taken along with the latest economic
data.
The price correction was moderated by a weak dollar, which
makes crude more affordable for buyers using other currencies,
led by gains for the commodities-linked Australian dollar.
U.S. crude futures <CLc1> lost 69 cents to $69.92 a barrel
by 0300 GMT, after surging almost $4 on Wednesday to $70.61,
the first time in a week that prices have risen above $70 and
allowing crude to squeeze out a slight gain for the third
quarter.
London Brent crude <LCOc1> shed 60 cents to $68.47 a
barrel.
Analysts said that despite a surprising drop in gasoline
stocks, which might signal nascent recovery in U.S. fuel
demand, gasoline and crude supplies maintained their large
surplus against the five-year average, and distillates
increased their excess to more than 38 million barrels, the
biggest seen in years.
Data from the U.S. government Energy Information Agency
(EIA) showed a 1.6 million-barrel drop in gasoline stocks for
the Sept. 25 week, versus expectations for a 1.0 million-barrel
rise.
But crude stocks rose by 2.8 million barrels, against
forecasts for a modest 600,000-barrel build. Distillates
increased by just 300,000 barrels, but were still at a 26-year
high of 171.1 million, coming ahead of winter demand. []
"The rise in distillate inventories in the latest data is
at least strike one and probably strike two for heating oil
cracks, in our view," Barclays Capital said in a note.
"Another rise in next week's data would be clearly
counter-seasonal and from a very high base. The potential
sensitivity to that single point makes distillate longs seem
overly hazardous to us at this point."
For interactive graphics of U.S. weekly oil inventories:
https://customers.reuters.com/community/commodities/graphics/DO
E_Actual.htm The dollar continued on the defensive on
Thursday, having resumed its downtrend in the previous session
as investors sold the U.S. currency and went long on
growth-linked currencies like the Australian dollar.
The soft dollar helped drive up crude, gold and other
commodity prices on Wednesday.
The market performance was also marked by the breakdown
between equities and commodities, signalling that
asset-specific fundamentals may again be taking centre stage.
For graphics on the commodity/stock market correlation:
http://graphics.thomsonreuters.com/gfx/JLeff_20090110104734.jpg
An unexpected contraction in Midwest business activity and
larger private-sector layoffs than had been forecast sounded a
downbeat note for the end of a quarter in which stock markets
performed strongly.
Traders will be watching talks between Iran's top nuclear
negotiator and six world powers in Geneva on Thursday over the
Islamic republic's nuclear programme, which U.S. officials said
could offer an opportunity for a rare bilateral meeting with
the Iranians. []
(Editing by Michael Urquhart)
