Oil prices steadied just above $58 a barrel on Wednesday as traders caught their breath from a near 4 percent profit-taking rout and looked ahead to weekly United States data to provide more direction on inventories and demand. Government data due is expected to show a decline in crude stocks and a rise in distillate inventories as refiners maximise output, but dealers will also be looking for any signs that high prices are undercutting robust US consumption.
US crude futures eased 5 cents to $58.15 a barrel on Wednesday, having plunged by $2.34 on Tuesday, a sharp reversal from Monday's record high of $60.95 a barrel.
London Brent crude added 5 cents to $57.23 a barrel after falling $2.12 a barrel.
Profit-taking by hedge fund speculators knocked prices lower on Tuesday, but traders said losses would likely be checked by lingering worries about winter supplies and the relatively small long positions held by speculative players.
"The downside is likely to be marginal because the funds do not have that many long positions to liquidate," said Sano Keiichi, assistant manager of the commodities business unit at Sumitomo Corp.
Speculators held net long positions of about 20,000 lots as of June 21, far less than at their peak last year.
"The funds are unlikely to take up new positions ahead of the long weekend in the US," Keiichi added, referring to the July 4 holiday that will close US markets next on Monday.
United States crude inventories likely fell 1.4 million barrels last week while distillate stocks rose 1.5 million barrels, according to a Reuters survey of analysts.
The data will also update the running four-week demand figures in the world's largest energy consumer, which had shown strong 6.9 percent growth in distillate usage and 2.5 percent incremental gasoline demand the week before.
Signs that high prices are only chipping away at strong United States and global economic growth have emboldened traders to test the upper limits of what the world can withstand, analysts say.
Oil prices have rallied 34 percent since the start of this year amid escalating concerns that a spike in winter heating oil demand in the fourth quarter of this year will strain global production and refining capacity.
In an effort to cool prices, the Organisation of the Petroleum Exporting Countries is expected to decide on an output increase of another half a million barrels this week even though it is already pumping crude near its highest level in 25 years.