* Oil down as equity markets stay weak
* U.S. distillate inventory down by 1 million barrels
* Oil may struggle to hold above $70, say analysts
(Updates prices, share price moves)
By Sambit Mohanty
SINGAPORE, Aug 6 (Reuters) - Oil eased on Thursday and
hovered close to $71.50, paring gains of nearly 1 percent in
the previous session that came after U.S. government data
showed a surprise decline in distillate supplies.
U.S. services and manufacturing sector data that came in
weaker than expected saw traders ponder whether the pace of
recovery from recession may be slower than hoped, even as Asian
stocks edged up to near 11-month highs.
China shares bucked the stronger trend, dropping for a
second straight day as worries mounted about possible liquidity
tightening after a central bank report that, while vowing to
continue a loose monetary policy, said it would make minor
adjustments.
"Today's equities rally is a bit artificial. There are no
fundamental factors to drive the market up. I would expect
equity markets to remain dull over the next few weeks and I
expect a further pull back in energy markets," said Stefano
Vincelli, a broker at Halifax Investment Services Ltd.
U.S. light, sweet crude <CLc1> fell 26 cents to $71.71 a
barrel by 0654 GMT, while ICE Brent crude <LCOc1> fell 21 cents
to $75.30 a barrel. The market is still trading at less than
half the record highs of over $147 it hit in July 2008.
U.S. inventories of distillates -- which include heating
oil as well as key fuels for industry such as diesel -- fell by
1 million barrels last week, according to the U.S. Energy
Information Administration, while demand was down 7.9 percent
on the year. []
"I think energy demand is still not there to help keep oil
above $70 on a sustained manner," said Ben Westmore,
commodities analyst at the National Bank of Australia.
Employment reports showed a higher-than-expected loss of
U.S. private-sector jobs in July, while planned layoffs at U.S.
firms increased during the same period for the first time in
six months, suggesting the labor market remains persistently
weak. []
Energy markets have been looking to broader economic data
for signs of an end to the recession and a potential rebound in
oil demand. Optimism has helped lift crude from below $33 a
barrel in December.
The wide price swings in oil in recent years have spurred
calls for greater market regulation. The U.S. Commodity Futures
Trading Commission, which oversees regulated futures exchanges,
held its third and final hearing on Wednesday into whether it
should limit how many futures contracts hedge funds, investment
banks and other speculators can control to help limit big
movements in energy prices. []
Funds that invest heavily in the sector argued that they
were not responsible for the wild volatility in energy prices,
while CFTC Chairman Gary Gensler reiterated the commission
should "seriously consider" setting position limits.
The U.K. Financial Services Authority and the U.K. Treasury
also met with oil industry representatives to discuss market
transparency and regulation, but issued no statement after the
encounter. []
(Editing by Michael Urquhart)
