London: Oil fell below $70 on Thursday, pulling back after the biggest daily jump since April as ballooning distillate stocks doused positive sentiment and revived the view that oil prices may have run ahead of demand.
US crude futures fell 67 cents to $69.94 a barrel by 4:00pm, after rising nearly $4 on Wednesday.
London Brent crude shed 63 cents to $68.44 a barrel.
A surprise drop in US gasoline stocks triggered the price rally on Wednesday that enabled crude to squeeze out a slight gain for the third quarter in a move which boosted commodity indexes overall.
Data from the US government Energy Information Agency (EIA) showed a 1.6 million-barrel drop in gasoline stocks for the 25 September week.
Distillates increased by 300,000 barrels, but were still at a 26-year high of 171.1 million, coming ahead of winter demand.
US crude stocks rose by a more-than-expected 2.8 million barrels in the same period.
“In reality (the gasoline stock draw) is a sign of how much the market is based on hope, rather than a solid analysis of facts,” said JBC Energy analyst David Wech in a research note.
Other analysts said that prices were likely to fall towards the bottom of the $65-$75 range where they have traded since early August as demand remains subdued.
“Aspects of the weekly petroleum report were supportive, at least relative to expectations but the data was really a mixed affair,” said Citi analyst Tim Evans in a research note, adding,“To our eye, the rally looks very much overdone, with hot money simply chasing the price dynamically higher.”
But geopolitical risk concerns over Iran’s nuclear programme moderated the correction on Thursday, analysts said.
Talks between Iran’s top nuclear negotiator and six world powers in Geneva will take place on Thursday, which US officials said could offer an opportunity for a rare bilateral meeting with the Iranians.
Tensions over the oil exporter’s nuclear programme have been a bullish factor in oil markets in recent years.
Oil prices shrugged off rallying European equities on Thursday, indicating a pause in close correlation between equities and commodities and that asset-specific fundamentals may again be taking centre stage.
Traders will look to US jobs data due at 6:00pm for further clues about the pace of economic recovery.