US supplies probably gained by 2.25 million barrels last week, according to a Bloomberg survey before the Energy Department's report on Wednesday. Opec, producer of over 40 per cent of global supply, may have to cut production this summer, Iran's governor to the group said on Wednesday. Iranian plans to review their own output spurred crude to a record $126.98 a barrel early on Wednesday.
"There's caution ahead of the inventory numbers,'' said Peter Luxton, a London-based energy analyst at Informa Global Markets. "Crude oil stocks in the US are healthy, and except for a blip in April they've been rising steadily.''
Crude oil for June delivery fell as much as 70 cents, or 0.6 per cent, to $125.10 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $125.43 a barrel at 1:44 pm GMT. Nymex futures have more than doubled in the past year. Brent crude oil for June settlement fell as much as $1.39 cents, or 1.1 per cent, to $122.71 a barrel, on London's ICE Futures. The contract touched a record $125.90 on May 9.
Iranian President Mahmoud Ahmadinejad told the state Fars news agency On Tuesday the second-largest producer in the Organization of Petroleum Exporting Countries is assessing oil output. The country is holding 20 million barrels of crude on tankers, about five days' of production, people familiar with the situation said last week.
Opec will eventually have to cut production as members begin to decrease production of heavier crudes, Iranian OPEC governor Hossein Kazempour Ardebili said in an interview from Tehran on Wednesday.
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Diesel supplies
Tuesday's record was also sparked by speculation that supplies of distillate fuels such as diesel may be insufficient to meet power generation demand in Asia and South America.
Inventories of distillates in developed countries fell 6.7 per cent to 477.6 million barrels in March from a year earlier, according to International Energy Agency estimates.
"Distillate prices across the globe are in overdrive as demand remains strong while poor refinery margins earlier in the year have led to tight supply,'' said Robert Laughlin, senior broker at MF Global in London.
Basket at $120.02
Indian crude oil basket eased by over a dollar on Tuesday from its record high of $121.09 a barrel (Rs 5,006), to reach $120.09 a barrel, a petroleum and natural gas ministry release said on Wednesday.