NEW YORK: Oil prices dropped on Wednesday after the US government reported an unexpected increase in crude and gasoline stockpiles, but an increase in refining runs and a drawdown in distillates helped prices bounce off session lows.
Prices also remained under pressure from this week's International Energy Agency (IEA) outlook for slower growth in global crude demand.
While the crude build of 1.9 million barrels reported by the Energy Information Administration was more than forecast, it was not as big as the increase of 6.5 million barrels reported on Tuesday by industry group the American Petroleum Institute. The EIA data encouraged buying at session lows.
"Overall, the report is somewhat supportive because it was not as bearish as the previous API report last night - that is why we are slowly digging our way out of the downside seen earlier this morning," said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.
The data also showed distillate stocks in the US Gulf fell to a one-year low, while overall refining rates rose in the latest week, led by a jump in East Coast refining, which is operating at a record 99.8 percent of capacity. Increased refining rates could eventually reduce crude inventories.
US West Texas Intermediate (WTI) crude settled down 37 cents to $55.33 a barrel. Brent crude futures settled off 34 cents to $61.87 a barrel, a fourth straight day of declines for Brent.
The benchmarks have dipped from earlier in the month, when a surfeit of buying from funds, bolstered by expected strength in demand and momentum from the ongoing rally, boosted prices to two-year highs. Those recent buyers may be getting washed out of the market now, analysts said.
"It's started to look like there's a little bit too much momentum, and the quality of the buyer coming into the market at the $56 to $57 level wasn't the smartest crude oil money," said Richard Hastings, macro strategist at Seaport Global Securities in Charlotte.
On Tuesday, the IEA cut its oil demand growth forecast by 100,000 barrels per day (bpd) for both 2017 and 2018. That could mean world oil consumption may not breach 100 million bpd next year as many had expected. Also, supplies are likely to exceed that level, particularly as US production continues to rise.
US crude oil production has jumped more than 14 percent since mid-2016 to 9.65 million bpd and is expected to grow further.
The IEA said non-OPEC production would rise 1.4 million bpd in 2018, undermining efforts by the Organization of the Petroleum Exporting Countries and other producers to limit global crude supplies and support prices.
OPEC meets on Nov. 30 and is expected to agree an extension to its output cuts.
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