LONDON, Jan 4: World oil markets were gripped by a second day of sharp selling on Thursday, as crude prices plunged to nearly $56 per barrel with London Brent hitting a 12-month low.

Analysts said the sharp falls, with both London and New York prices down by 7.0 per cent since Wednesday, were because of warm winter weather in the northern hemisphere and data on Thursday which showed high levels of heating fuel stocks in the US.

In London on Thursday, Brent North Sea crude for February delivery slumped $1.75 to $56.21 per barrel, after touching $56.04 -- its lowest level since December 28, 2005. It had lost $2.48 on Wednesday.

New York’s main contract, light sweet crude for delivery in February, sank $1.72 to $56.60 per barrel in floor trading after earlier touching as low as $56.48 -- last seen November 17, 2006. The contract had plunged $2.73 on Wednesday.

The US Department of Energy (DoE) revealed on Thursday that US stockpiles of distillates, which includes heating fuel, rose by 2.0 million barrels to 135.6 million barrels in the week ending December 29. That reading was much more than the predicted rise of 850,000 barrels.

The DoE added that crude inventories dropped 1.3 million barrels to 319.7 million -- which was less than the 2.0-million-barrel decline expected by Wall Street analysts.

Gasoline reserves surged 5.6 million barrels to 209.5 million, which was almost four times market expectations for a rise of just 1.5 million barrels.

“The data was obviously pretty bearish,” said Fimat analyst John Kilduff, meaning the data put downward pressure on prices.

“The fact that distillates rose in the first week of January was significant and goes back to lack of winter fuel demand.”

The DoE report comes as oil traders worry about unseasonally warm weather in the United States which has severely dented demand for heating fuel.

Heating fuel demand traditionally hits a peak during the northern hemisphere winter months.

Weather forecaster DTN Meteorlogix has predicted temperatures in the US northeast, the world’s largest heating oil market, will be as much as eight degrees Celsius above normal this week.

Also, the US National Weather Service has said demand for heating oil will be about 33 per cent below normal this week.

“The milder weather could prove to be a major headache for Opec, which has already pledged to two production cuts totalling 1.7 million barrels per day in order to defend the $60 a barrel level,” said Sucden analyst Michael Davies.—AFP