Oil prices supported by dip in US distillate supplies

The decline buoyed forecasts of stronger demand

Oil prices edged higher in Asian trade today as a surprisingly sharp decline in US distillate supplies last week buoyed forecasts of stronger demand in the world's top crude consumer, analysts said.

New York's main contract, West Texas Intermediate (WTI) for March delivery, was up 19 cents at $97.51 in mid-morning trade while Brent North Sea crude for March rose 11 cents at $107.69.

The Department of Energy's (DoE) weekly petroleum stockpiles report, delayed by a day by a US holiday Monday, showed a significant drawdown in distillate fuel as severe winter weather gripped North America.

Distillate fuel, which includes heating oil and diesel, fell 3.2 million barrels in the week ended January 17, the report said. The plunge surprised analysts, who on average forecast a decline of 800,000 barrels.

"Strength in refined oils provided some price support for crude oil in terms of feedstock," Singapore-based Phillip Futures said in a note.

US crude-oil supplies however rose for the first time in eight weeks, the DoE said, but the increase of one million barrels was in line with expectations.

"The gain could be a result of refineries operating at a low operable capacity, which stood at 86.5%," Phillip Futures said.

It said the underwhelming impact of the opening of the Southern US leg of the controversial Keystone XL pipeline was putting pressure on prices.

The $2.3 billion pipeline on Wednesday started carrying crude 785 kilometres from Cushing in Oklahoma to Gulf Coast refineries in the southern state of Texas.

"Upon commencement, the pipeline transported only 300,000 barrels per day from Cushing to the US Gulf Coast, barely halve the pipeline's maximum capacity," Phillip Futures said.

"The purpose is likely due to the monitoring of the transportation process in order to prevent any oil spill incidents that could invite further discontentment from environmental activists," it said.