Oil prices decline in Asian trading

Oil prices dropped slightly Thursday as traders responded to gains a day earlier caused by a report showing declining U.S. crude inventories.

Light, sweet crude for April delivery fell 11 cents to $61.68 a barrel in midmorning Asian electronic trading on the New York Mercantile Exchange.

On Wednesday, prices hit a two-month high following a U.S. government report that stockpiles of gasoline and distillates, which include heating oil and diesel fuel, dropped last week by a larger amount than analysts had forecast.

Iran's persistent refusal to suspend its nuclear program has also been a driving force behind the energy market's recent advance.

Iran ignored an IAEA deadline last week to halt its nuclear program. Iranian Foreign Minister Manouchehr Mottaki reiterated Tuesday that his country would never again suspend uranium enrichment, a move the United States insists on for any negotiations with Tehran.

Oil prices didn't seem to react too much to a global sell-off in stocks, triggered by a plunge in Chinese shares. Stock markets have since started to bounce back.

"The oil market has essentially brushed off the correction in the equities market and is focusing on the U.S. inventory report, which was quite bullish," said energy analyst Victor Shum, of Purvin & Gertz in Singapore.

U.S. crude inventories climbed 1.4 million barrels to 329.0 million barrels last week, the Energy Information Administration said Wednesday in its weekly report. But gasoline inventories fell by 1.9 million barrels to 220.2 million barrels, and distillate inventories fell by 3.8 million barrels to 124.5 million barrels. Both drops were a bit larger than most analysts were expecting.

Shum said, however, that the stock market and economic concerns had contributed to slow trading in the oil market.

"I think in the near term we can expect a lot of volatility in the oil market," Shum said, noting continuing concerns over Iran.

In other Nymex trading Thursday, natural gas futures fell 3 cents to $7.270 per 1,000 cubic feet. Heating oil futures under the new April contract traded at U.S.$1.7705 a gallon, down 0.76 cent.