Oil falls to $93 after spike on Venezuela threat

A US government report due on Wednesday is expected to show crude stocks rose by 2.3 million barrels last week. Venezuela's threat to stop sales to the US, which drove oil up on Monday, limited the decline.

"Despite the recent surge, we think the markets are probably close to peaking in the short term," MF Global said in a report.

US crude dropped 55 cents to $93.04 a barrel by 2.39pm GMT. London Brent crude lost 57 cents to $92.96.

Oil rallied almost 2 per cent on Monday in reaction to the threat from Venezuelan President Hugo Chavez, which his energy minister, Rafael Ramirez, reiterated in remarks published by a newspaper on Tuesday.

The threat prompted investors to look again at the supply side of the market rather than the demand outlook. Oil has fallen from a record high of $100.09 hit in January, partly on concern about the weakening US economy.

Venezuela is the fourth biggest supplier of crude to the United States, and energy analysts have said any interruption to shipments could tighten inventories and push prices higher.

Chavez made the threat on Sunday after Exxon Mobil won a court decision freezing $12 billion (Dh44bn) of Venezuela's overseas assets, stepping up its push for compensation for the nationalisation of an oil project.

The Venezuelan leader has frequently issued conditional threats to stop shipments to the United States amid clashes with the White House, but has never followed through with a halt.

"While a disruption in short-haul Venezuelan supplies would be a blow to the US economy, it would arguably be much more devastating to Venezuela itself," said Antoine Halff of Newedge Group.

"Indeed, despite falling Venezuelan crude output, recent monthly data suggest its exports to the US have been on the rise." (Reuters)