Oil falls for third session on drop in share prices

London: Oil fell below $74 (Dh271) a barrel on Wednesday, declining for a third straight session, with the US benchmark hit by weakness in equity markets.

European equities declined more moderately in early trading , following on from losses in Japan. The MSCI All Country World Index was also slightly down on the day.

US crude for October fell 47 cents to $73.62 a barrel by 0951 GMT.

Traders attributed the decline to the weakness in share prices, which have been highly correlated with oil prices for most of 2010 because both are seen by funds as indicators of the strength of global economic recovery.

"Today, oil is a little bit under pressure from weakness in equity markets worldwide," said Eugen Weinberg, commodities analyst at Commerzbank in Frankfurt.

A unexpected fall in German exports in July after two months of strong gains added to evidence that a cooling world economy is slowing the German industrial juggernaut somewhat.

The market is also awaiting the release of weekly US industry and government statistics on inventories, delayed by a day following Monday's Labour Day holiday in the United States.

"It's well in a range of between $75 and $80 and we need some strong news to push prices out of this range," Christophe Barret, an oil analyst at Credit Agricole, said.

"Last week's data was a bit weak and this week will be interesting as it will reflect what happened just ahead of the Labour Day weekend."

US crude is trading at a steep discount of $3.42 to futures based on the European Brent benchmark. The gap reached a peak of $3.91 earlier in the day, its highest since mid-May. Brent was 72 cents down on the day at $77.02.

Weinberg said US crude's discount to Brent was "definitely due to investment outflow, weaker demand, and high oil inventories [in the United States]."

Total US petroleum stockpiles are at their highest since weekly records began in 1990.

Maintenance at North Sea fields and a strong Urals crude market have also contributed to Brent's premium.

Stormy weather

However, US crude inventories probably fell for the first time in three weeks last week, down by a moderate 600,000 barrels, as refineries reduced imports in preparation for stormy weather, according to a Reuters poll on Tuesday.

The American Petroleum Institute will publish its weekly US industry statistics on inventories at 8.30PM (GMT) yesterday with the Energy Information Administration publishing government figures today. The poll also forecast a 700,000 barrel increase in stockpiles of distillates, including heating oil and diesel fuel, and a 900,000 barrel decline in gasoline supplies.