Oil falls following choppy trade

NEW YORK (CNNMoney.com) -- Oil prices fell Wednesday despite a government report that said supplies of heating oil fell more than expected and crude supplies showed a surprise drop.

U.S. light crude futures for March delivery ended down $1.17 at $57.71 a barrel on the New York Mercantile Exchange. Oil had traded up 58 cents at $59.46 just prior to the report's release, then rose as high as $59.85 before coming down.

In its weekly inventory report, the Energy Information Administration said distillates, which are used to make heating oil, fell by 3.7 million barrels. Analysts were looking for a drop of 3.2 million barrels, according to Reuters.

But crude supplies fell by 400,000 barrels, while gasoline stocks rose 2.6 million barrels. Analysts were looking for a 1.4 million-barrel gain in crude supplies and a 1.8 million-barrel increase in gasoline stocks.

One analyst said the build in gasoline supplies was partly responsible for the pullback but credited most of it to crude prices trying, and failing, to break the psychologically important $60 barrier three days in a row.

"The market tried to rally but came up a little empty," said Jim Quinn, a NYMEX floor analyst for A.G. Edwards. "Once we came back down to where we were [before the report], crude started looking for a new floor."

Quinn said most of the weather-induced drop in distillates was already built in to oil prices.

Oil prices have rebounded from a 20-month trading low of $49.90 hit on Jan. 18 as cold weather blanketed the Northeast United States, eroding heating oil stocks, which had been at historically high levels.

Forecasters expect the cold spell to continue, although temperatures are expected to moderate in the coming days.

The National Weather Service is predicting temperatures slightly below normal for the next six to 10 days.

OPEC cuts have also played a part in lifting oil prices of late.

On Tuesday, EIA estimated OPEC had succeeded in reducing output by 600,000 barrels in the fourth quarter of 2006, about half of what the cartel said it was going to cut back in November.

OPEC has also announced a further production cut of 500,000 barrels effective Feb. 1, although it will be several weeks before traders get numbers on those reductions.

OPEC production is hard to verify, as member states do not release much production data, and numbers instead have to come from estimates of tankers entering or leaving ports.

Cuts are also hard to enforce since member countries are loath to decrease output and lose revenue.

Stocks of oil majors, including BP (Charts), ExxonMobil (Charts), ConocoPhillips (Charts), Chevron (Charts) and Royal Dutch Shell (Charts), have rebounded along with the price of crude.

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