Oil declines

Oil, natural gas prices declineNEW YORK (AFX) - A worse-than-expected manufacturing report and falling natural gas prices pulled the plug Thursday on a two-day oil rally that saw prices jump more than $4 a barrel.Light, sweet crude for March delivery fell 84 cents to settle at $57.30 a barrel on the New York Mercantile Exchange. The contract rose $1.17 a barrel on Wednesday and by $2.96 on Tuesday.Brent crude for March delivery fell 68 cents to $56.72 a barrel on London's ICE Futures exchange.The Tempe, Ariz.-based Institute for Supply Management reported Thursday that the nation's manufacturing sector contracted in January, surprising most economists, who had expected growth.The manufacturing index registered 49.3 in January, reversing an expansion in December, when the index stood at 51.4. A reading below 50 indicates a contraction in U.S. manufacturing, while a reading above 50 signals growth.Declining natural gas also weighed down on crude oil. On the Nymex, natural gas prices settled at $7.530 per 1,000 cubic feet, down 13.7 cents, after the government reported that underground supplies of natural gas were bigger than expected.The Energy Department said that underground storage for natural gas decreased by 186 billion cubic feet last week to 2,571 billion cubic feet. But analysts had predicted a larger drawdown of 205 billion cubic feet, according to a Dow Jones Newswires survey.Storage stockpiles also remain higher than last year and above the five-year average."We thought it would be a larger withdrawal and didn't quite get there. That took a little of the bullish momentum out of the market today," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.Tim Evans, energy analyst at Citigroup Global Markets, expects the natural gas bulls will return soon, however. "I think the story on the natural gas storage numbers is more disappointing than bearish," he said. "There was still an above average withdrawal, so it's still a supportive number."Flynn noted, too, that continued colder-than-normal temperatures in the U.S. Northeast and Midwest could help to boost natural gas and crude oil prices in the near term.Petroleum traders are also watching a new round of OPEC production cuts. The Organization of Petroleum Exporting Countries was set to begin its second round of production cuts, announced late last year, of 500,000 barrels a day of crude oil.While most analysts and tanker trackers believe the cartel has fallen well short of its first cut, Saudi Arabia was reported to have added support to prices this week when it said it would cut its share -- 158,000 barrels a day -- starting Thursday."At least the top dog has indicated they're going to comply with their share of the output cut," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "What's emerging is quite clear: The supply-demand balance is tightening even if OPEC doesn't fully comply with the cuts. Oil demand is also likely to remain strong, as the latest economic data out of the United States indicates."The U.S. Energy Information Administration's weekly inventory report on Wednesday was close to what most traders were expecting, and reaffirmed the belief that U.S. supplies of crude and gasoline remain abundant, but recent cold weather has been eating into heating fuel supplies.The EIA said crude oil inventories rose last week by 2.7 million barrels to 324.9 million barrels; gasoline inventories rose by 3.8 million barrels to 224.6 million barrels; and distillate inventories -- which include heating oil and diesel fuel -- fell by 2.6 million barrels to 140.0 million barrels. A decrease in heating oil offset a small increase in diesel fuel.In other Nymex trading, heating oil dropped nearly 2.5 cents to settle at $1.6589 a gallon. Gasoline futures settled at $1.5253 a gallon, down 2.7 cents.