* Analysts see rally in danger of fizzling
* U.S. commercial crude stocks seen hitting new record
* API data shows smaller-than-expected U.S. inventory build
last week
(Updates prices and market activity following API data,
paragraphs 1-4)
By Devika Krishna Kumar
NEW YORK, March 29 (Reuters) - Oil prices fell about 3
percent on Tuesday, reflecting growing concern that a two-month
rally was fading as demand fails to keep up with swelling global
supply, including new output from Kuwait and Saudi Arabia.
Prices bounced, but only briefly, after U.S. Federal Reserve
Chair Janet Yellen made remarks that investors saw as dovish for
the U.S. interest rate outlook.
Brent LCOc1 futures settled down $1.13 at $39.14 a barrel
while U.S. crude CLc1 settled $1.11 lower at $38.28 per
barrel.
Prices rebounded marginally in post-settlement trading after
data from industry group American Petroleum Institute showed a
2.9 million barrels rise in crude stocks last week, less than
the 3.3 million barrels analysts had expected. API
The decision by Kuwait and Saudi Arabia to resume oil
production at the jointly operated 300,000-barrel-per-day Khafji
field, at a time when production is supposed to be frozen,
triggered the selloff in oil, traders said.
"The capacity of that field in the Neutral Zone is more than
what Ecuador produces. If they do freeze, it will not be at the
January levels but at a lot higher figure," one trader said,
referring to the Kuwait-Saudi border area where Khafji is
located.
Yellen told the Economic Club of New York the Fed should
proceed "cautiously" with interest-rate hikes because inflation
has not proven durable against the backdrop of global risks to
the U.S economy.
Hawkish comments from Fed officials last week triggered a
widespread correction in commodities and bolstered the dollar.
"The comments today suggest that it (next rate hike) may be
more delayed and the dollar getting whacked is providing support
to oil, although oil is still trending to the downside in the
short term," Energy Management Institute analyst Dominick
Chirichella said.
The dollar index .DXY slipped to an eight-day low
following Yellen's comments, making greenback-denominated
commodities cheaper for holders of other currencies.
Oil prices have risen more than 30 percent since
mid-February, ahead of an April 17 meeting in Doha where the
Organization of the Petroleum Exporting Countries (OPEC) and
other major suppliers including Russia will discuss an output
freeze aimed at bolstering prices.
But with global inventories swelling and signs some OPEC
members are losing market share, the meeting is unlikely to do
much to prop up prices, analysts and traders said.
Rising gasoline demand in the United States is not seen
keeping pace with the increased worldwide supplies. API data
showed a smaller-than-expected draw in gasoline stocks in the
week to March 25.
Oil prices sank early after a source familiar with Iranian
thinking said Tehran would attend the Doha meeting, but not
necessarily take part in negotiations over production freezes.
Market watchers have said the rebound in U.S. crude from
12-year lows touched in February was due more to short covering,
rather than improving fundamentals. O/ICE
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CHART-Brent may approach support at $39.07 http://graphics.thomsonreuters.com/US/2/PVB_20162903095011.png
CHART-U.S. oil biased to rise to $41.42 http://graphics.thomsonreuters.com/US/2/PVB_20162903091720.png
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