Oil prices slipped yesterday despite a big fall in US crude oil stockpiles and the Fed's interest rate cut as traders fretted over a •jump in gasoline supplies ahead of the driving season.

By the close of business, London crude futures were down 19 cents at $26.70 a barrel while New York light erode for March delivery was 36 cents lower at $28.70 a barrel.

As widely expected, the US Federal Reserve cut key interest rates by half a percentage point to prevent the flagging economy from falling into a slump. It blamed soaring energy prices as part of the reason for the slowdown.

Consumer and business confidence has eroded further, exacerbated by rising energy costs that continue to drain consumer purchasing power and press on business profit margins," the FOMC

said in a statement after its meeting.

The committee also signalled that more cuts could be on the cards, even after the two adjustments this month erased last year's inflation-busting rate-hike campaign.

When the Fed cut interest rates by 50 basis points in early January, oil traders applauded the news by sending prices over $1 a barrel higher amid hopes for a belter demand outlook from the world’s top energy consumer, the United Stales.

This time around, however, markets were prepared for the cut and showed little reaction, quickly gaining and then losing about 20 cents after the announcement.

US gasoline draw key

The surprising surge in gasoline stocks held traders' attention for most of the day, with US gasoline futures drawing the entire oil complex lower.

NYMFA gasoline for February delivery, which expires on Wednesday, ended 220 points lower at 86 cents a gallon.

The US Department of Energy's statistical arm. the F.nrrgv Information Administration, reported on Wednesday that crude stocks drooped 3.6 million barrels to 282.6 million barrels for the week ended Jan 26. a more modest fall than reported Tuesday.

The API registered a massive 5.63 million barrel draw in US crude oil slocks to 282.81 million barrels with a significant gasoline build of 6.6 million barrels to 206.7 million barrels.

The EI A reported gasoline slocks building 5.2 million barrels lo 205.9 million barrels.

The build on gasoline stocks data is really what’s brought us down to these levels," said one London broker.

According lo the API, gasoline tanks In the United Stales stand more than eight million barrels

higher (han in the equivalent week a year ago, boosting refiners’ efforts to build solid cover before peak demand summer driving

But analysts were wary that the gasoline build was an early signal of the impact of the waning economy on oil consumption.

"Implied gasoline demand just cratered," said John Kilduff, senior Vice-president of Fimat Futures. "It was down to about 7.2 million barrels per day over the week and I make (hat the lowest since 1997."

Kilduff put the five-year aver age for gasoline demand at about 8.4 million bpd. "If the economy is screeching to a hall then it's showing up in the gasoline numbers," he said.

Markel sentiment has been bearish in the latter half of January as relatively mild weather in the northern hemisphere, especially in the United States, has relieved concerns of possible shortages of heating fuel.