Oil prices drop ahead of U.S. report

Oil prices fell Wednesday as the market adjusted to a spike the day before and awaited the weekly U.S. inventories report, which was expected to show higher gasoline stockpiles but a drop in distillates such as heating oil.

Still, the market remained poised for upward movement, with OPEC powerhouse Saudi Arabia and other members of the oil-producing organization seemingly ready to pay more attention to agreed-on production constraints.

Expectations of cold weather also kept a relatively high floor under prices.

Light, sweet crude for March delivery fell 33 cents to $56.64 by midday in Europe in electronic trading on the New York Mercantile Exchange. Brent crude for March delivery dipped 41 cents to $55.98 a barrel on the ICE Futures exchange in London.

Oil and natural gas prices jumped Tuesday on expectations of more cold weather in the United States and renewed concerns about OPEC production cuts. Oil traded as high as $57.05 before falling back to settle at $56.97 a barrel, a gain of $2.96.

Colder-than-normal temperatures are expected through mid-February in the U.S. Northeast, which is responsible for 80 percent of the country's heating oil consumption.

Heating oil was down almost a cent at $1.6302 a gallon. Natural gas, meanwhile, dropped 7.9 cents to $7.661 per 1,000 cubic feet. A day earlier, it had soared more than 80 cents, or 11.6 percent, on forecasts that predict temperatures will dip below freezing in the U.S. Midwest, the heart of the natural gas market.

Crude oil prices also received a boost Tuesday from a Wall Street Journal report that said Saudi Arabia has told its customers it will cut supply by a further 158,000 barrels a day, effective Feb. 1. his country did not favor further production cuts.

Saudi Arabia is the biggest producer in the Organization of Petroleum Exporting Countries, which said it would begin cutting production by 1.2 million barrels a day in November. Some traders have speculated that a few cartel members were not complying. The group said late last year it planned to cut production an additional 500,000 barrels a day starting Feb. 1.

Vienna's PVM Oil Associates cited Nigerian Energy Minister Edmund Daukoru as saying "that the organization's members have agreed that compliance with the cuts will give more support to oil prices than announcing further supply reductions."

The markets are also looking ahead to the weekly report on U.S. inventories on Wednesday.

U.S. crude imports are expected to have risen by 1.2 million barrels in the week ended Jan. 26, according to a survey of analysts by Dow Jones Newswires. Gasoline stockpiles are expected to gain 1.6 million barrels, while distillate stockpiles, which include heating oil and diesel, are seen falling by 2.6 million barrels.

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Associated Press Writer Tanalee Smith in Singapore contributed to this report.