Oil drifts ahead of inventory reading

LONDON (Reuters) -- Oil prices slipped 0.6 percent towards $58 on Wednesday ahead of U.S. data that is expected to show a rise in crude oil inventories in the world's biggest consumer but a decline in winter heating oil stocks.

U.S. crude fell 22 cents to $58.51 a barrel, erasing Tuesday's 37-cent gain. Prices tumbled nearly 4 percent on Monday on doubts over OPEC's resolve to cut output in line with its Oct. 20 agreement.

London Brent crude was down 13 cents at $58.90.

"The risk is for further weakness towards the confluence of support in the $55.50 area. Further out, we do expect the market to stage a relief rally back toward $65," analysts at Barclays Capital said in a technical report.

Since the start of October U.S. oil has traded between $56.55 and $61.79 a barrel, waiting for a clearer picture of OPEC supplies on the one hand and U.S. demand on the other.

U.S. data due later on Wednesday is expected to show a 2.7 million-barrel rise in crude oil inventories, rebounding from a slump the previous week when bad weather forced the country's biggest import terminal to shut temporarily.

But gasoline and distillate stocks were expected to slide by 1.3 million barrels each, with a spell of chilly weather and heavy refinery maintenance eroding the pre-winter supply cushion, a Reuters survey of analysts found.

"Most participants expect a bearish number for crude oil, but I think that's already priced in. If we don't see a bearish number in products then the market may rise again above $60," said Bansei Securities analyst Makoto Takeda.

He said a reading of oil demand growth, which has been quickening, would also be important for the market's reaction.

Demand from China, the world's second biggest oil consumer, is also key. Reuters reported on Wednesday that China will add up to 4 million barrels of crude to its strategic reserves by mid-December, more than doubling stocks.

The Organization of the Petroleum Exporting Countries' first output curbs since 2004 come into effect on Nov. 1, but many analysts and traders doubt the organization's ability to enforce the 1.2 million barrels per day reduction.

Refiners say only Saudi Arabia and the United Arab Emirates have told them supplies will be reduced. Indonesia, a net importer, has broken ranks to say it should be exempt.

"It's unlikely that we'll see full implementation, but that's not important because the Saudis have committed to their reduction," said Takeda. "There is a likelihood of a further cut in December, so traders are nervous about selling further."

Oil traders say OPEC member Nigeria will actually increase its exports in December.

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