Oil falls towards $71 after last week’s rally

Oil falls towards $71 after last week’s rally

Singapore: Oil inched lower on Wednesday, giving up earlier gains made on the back of a surprise drawdown in US crude inventories, pausing for breath after a rally that helped the market to gain 13% since late last week.

US crude, which lost 0.2% a day earlier, found support earlier in the day after American Petroleum Institute data showed crude stocks unexpectedly fell 1.5 million barrels last week, adding to positive news from buoyant stock markets and a dollar that hovered near 2009 lows.

The oil market will also be closely following a meeting between trade representatives and Britain’s financial powers, the UK Financial Services Authority (FSA) and the UK Treasury, which comes just ahead of a third Commodity Futures Trading Commission (CFTC) hearing in Washington over how to rain in speculation.

The UK meeting will discuss market transparency and efficiency, according to the FSA invitation to oil market participants, a copy of which has been seen by Reuters.

US light, sweet crude fell 24 cents to $71.18 a barrel by 12:21pm, while ICE Brent crude fell 2 cents to $74.26 a barrel. The market is still trading at less than half the record highs of over $147 it hit in July 2008.

“The market is reacting to the news from the API but I think in the next few months there will be a downward bias for oil. Supplies are quite adequate to meet demand," said David Moore, commodity strategist at the Commonweath Bank of Australia.

Trading should remain subdued while the market waits to see if data from the U.S. Energy Information Administration, due to be released later on Wednesday, is in line with the API numbers.

A Reuters poll of analysts forecast an 800,000-barrel build in crude stocks in the week to 31 July. The poll also predicted a 1.2-million barrel rise in distillate stocks and a 1.0-million barrel drop in gasoline stocks.

Optimism that a potential turnaround in the global economy could lift sagging oil demand has helped send crude up from lows below $33 a barrel in December, with energy traders keeping an eye on equities markets for signs of an economic rebound.

“Equities is one of the key drivers for the oil market now and I feel oil could break $75," said Daniel Liu, an energy strategist at MF Global Singapore.

Japan’s Nikkei average was almost flat on Wednesday, with investors taking a breather after the index set a 10-month closing high the previous day.

Pending sales of previously owned US homes rose at a faster-than-expected pace in June, advancing for the fifth month in a row, according to the National Association of Realtors, a real estate trade group.

Energy traders also were watching an area of thunderstorms in the Atlantic Ocean several hundred miles southwest of the Cape Verde Islands associated with a tropical wave. The US National Hurricane Center said it had less than a 30 percent chance of becoming a tropical storm.