NYMEX crude prices down on oil surplus concerns

NYMEX crude oil futures fell Tuesday with the approach of weekly oil and fuel inventory data that is expected to show extra supplies continuing to build up.

Light, sweet crude for November delivery recently traded 81 cents, or 1.2%, lower at $66.03 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 69 cents, or 1.1%, lower at $64.85 a barrel.

The memory of last week's surprise report of increasing US oil inventories is still fresh in the oil market.

The next round of data is due out Tuesday after settlement from the American Petroleum Institute, an industry group, and then Wednesday from the Department of Energy. Analysts are split on whether oil inventories will rise again, but nearly all expect fuel stockpiles to continue to climb further into the stratosphere.

Oil and fuel inventories built up during the global downturn, and their continued presence is raising doubts about the strength of oil demand in the early stages of the world economy's recovery.

The oil market is looking at a long winter of juggling oil and fuel surpluses if demand doesn't pick up soon, a prospect highlighted in weekly inventory data.

The glut gives refiners a huge incentive to cut crude processing rates, as plentiful gasoline, diesel and heating oil make producing the fuel increasingly less profitable. Refiners in the U.S. and Europe will need to operate at about 80% of capacity this winter - nearly 6 percentage points below the current level in the US - to bring inventories back in line, wrote analysts with JBC Energy in Vienna.

If demand doesn't pick up this winter, refiners may succeed in reducing the fuel surplus, only to drive up oil inventories again.

In the week ended Sept. 25, analysts gave an average forecast for a 400,000-barrel decline in oil inventories, but a 1.1-million-barrel increase in both gasoline and distillate stocks, a category that includes heating oil and diesel.