Oil Prices Drop as France Says Ready to Tap Reserves

Oil prices retreated Wednesday as France said it was ready to tap strategic crude reserves and as investors awaited the latest weekly snapshot of U.S. energy inventories.

New York's main contract, West Texas Intermediate crude for delivery in May, shed 98 cents to $106.35 a barrel.

Brent North Sea crude for May slid $1.12 to $124.42 in London midday deals.

France is ready to tap into its strategic oil reserves to help bring down global crude prices, Energy Minister Eric Besson said on Wednesday after a cabinet meeting.

"It was the United States that requested this, and France greeted the idea favorably. We are now waiting for the opinion of the International Energy Agency," he told reporters at the Elysee Palace.

Government spokeswoman and budget minister Valerie Pecresse said France was working with the United States and Britain to persuade the IEA to permit them to tap their reserves "to counter speculation on global energy markets."

It marked an evolution of France's position. Last week, Besson said that Paris was merely studying the possibility of opening its reserves as "one of the options" to tame rising oil prices.

In theory, a nation's reserve is designed to be held in case of a major international crisis like a war or a natural disaster in an oil producing area.

But Asia's fuel-hungry economies are once more gathering steam, pushing up prices at a time when the economic recovery remains more vulnerable in some western economies, such as those of France and the United States.

Tensions are also running high in the Middle East, with Iranian exports limited by embargo and political unrest in several oil producers.

France and the United States are also in election mode, with both U.S. President Barack Obama and his French counterpart Nicolas Sarkozy facing pressure from voters over high pump prices for petrol and diesel.

Later on Wednesday meanwhile, the U.S. government publishes its energy inventory data for last week.

On Tuesday the American Petroleum Institute, a private organization, forecast that U.S. crude inventories rose by 3.6 million barrels last week -- indicating weak energy demand in the world's biggest consumer of oil.

Investors' dim view about U.S. demand was echoed in a closely-watched survey showing American consumers growing more pessimistic about economic conditions.