* Weaker equities, strong dollar pressure
* API data shows surprise stock draw, EIA data due
* OPEC supplies may increase even without target change
(Updates prices)
By Joe Brock
LONDON, Oct 28 (Reuters) - Oil fell below $79 a barrel on
Wednesday, pressured by weaker equities and a stronger dollar,
and as prices struggled to break through the psychological $80
mark.
U.S. crude for December delivery <CLc1> fell 56 cents to
$78.99 a barrel by 1223 GMT, after settling up 87 cents on
Tuesday, its first rise in four days. London Brent crude <LCOc1>
dropped 59 cents to $77.33.
Oil prices rallied from below $70 a barrel on Oct. 7 to a
one-year high of $82 last Wednesday, coinciding with higher
global stock indices and a weaker dollar, but oil has so far
failed to hold above $80.
"The correlation with the dollar and equities has been going
for some time and is still very much in play, they are all
moving in close step," Simon Wardell, oil analyst at Global
Insight, told Reuters.
Japan's Nikkei share average hit a two-week closing low on
Wednesday [], while European stock markets fell more than 1
percent [], raising doubts over the pace of global economic
recovery and subsequent increased demand for fuel.
The dollar strengthened against a basket of currencies
<.DXY> on Wednesday, adding pressure to oil prices. As the
dollar rises, dollar-denominated crude becomes more expensive
for holders of other currencies.
EIA DATA LOOMS
U.S. crude rose more than 1 percent on Tuesday after data
from the American Petroleum Institute data showed U.S. crude
stocks fell by 3.5 million barrels last week, compared with a
forecast for a 1.8 million barrel build in a Reuters poll.
The data also indicated, however, that U.S. gasoline and
distillate supplies fell less than expected. []
The API report is a precursor to numbers issued by the U.S.
government's Energy Information Administration at 10:30 a.m. EDT
(1430 GMT) on Wednesday.
"Crude rose on API's (crude) decline but the gains were
pared by profit taking," said Ken Hasegawa, a commodity
derivatives sales manager at broker Newedge in Tokyo.
"After oil hit $82, there are no particular economic
indicators to push prices further upwards. But the downside is
supported by declining inventories as we head into the peak
winter season."
Crude was also supported on Tuesday by a report from
MasterCard SpendingPulse showing U.S. gasoline demand rose last
week -- 5.1 percent higher than year-earlier levels, shrugging
off a drop in consumer confidence in the world's biggest energy
user.
OPEC oil ministers said this week the producer group might
raise output at a meeting in December if prices continued to
rise and global crude stocks fell fast as group members were
nervous about unsustainable gains in oil prices.
Analysts said they expected OPEC supplies to increase even
without an official change to the group's output target, which
would be likely to moderate oil price rallies.
"It may be difficult for OPEC to gain consensus on higher
output, without higher prices, but that does not mean that we
will not have higher output," Lawrence Eagles, analyst at JP
Morgan said.
(Editing by Barbara Lewis and Sue Thomas)
