Oil fell on Wednesday as a hefty rise in crude stocks in the United States countered concerns of a supply shortfall in the world's top consumer. London Brent crude, currently seen as more representative of the global market than US prices, settled down 34 cents to $65.20 a barrel, erasing an earlier rally fuelled by attacks on Nigeria's oil industry.
US crude fell 71 cents to $61.55. Weekly government data showed US crude oil stocks increased by 5.6 million barrels last week, far exceeding analyst expectations for a rise of 400,000 barrels.
"The report is bearish, with a much-larger-than-expected build in crude oil stockpiles. This reflects the increase in imports. This is additionally bearish because refinery runs did increase," said Eric Wittenauer, an analyst at A.G. Edwards.
While current oil prices are still high by historic standards, the oil minister for Qatar, a member of the Organisation of Petroleum Exporting Countries, said a shortage of oil was not the culprit.
"I can say the market is saturated with oil," Abdullah al-Attiyah told Reuters.
Analysts say lagging US gasoline production ahead of the summer driving season and crude production outages in Nigeria have supported prices in recent weeks.
Algerian energy minister Chakib Khelil said he would oppose any proposal to raise production at Opec's next scheduled meeting in September, and sees consensus among the group's members to hold output steady until then.
Earlier Wednesday, Brent had climbed steeply, adding to the previous day's $1.10 gain, as investors digested news of the latest attacks in Nigeria, the world's eighth-largest exporter, where 28 percent of oil output is already shut.
On Tuesday, rebels belonging to the Movement for the Emancipation of the Niger Delta blew up three oil pipelines, forcing Italian company Eni to halt production of 150,000 barrels per day. The bomb attack forced Eni to declare fore majeure on Brass River oil exports.
"Indications from the MEND are that attacks may persist, reinforcing our view that oil companies won't be able to bring back most of this production in an expeditious manner within the next few months," Lehman Brothers analysts said.
MEND said on Wednesday it had instructed armed groups in the Niger Delta to unleash a month of "mayhem" to press its case for more autonomy in the oil-producing region.
Lehman noted Nigeria's total output offline now exceeded the peak seen during 2003 presidential elections. There had been hopes in some quarters that last month's presidential poll would mark the start of a recovery in Nigeria's oil industry.
Nigerian Energy Minister Edmund Daukoru told Reuters he was optimistic Shell would resume exports from its Forcados oil fields next month. He predicted violence in the Niger Delta would subside after new president Umaru Yar'Adua takes office.
"Once the new administration is sworn in and gets engaged with the problem, I think it will die down," Daukoru said.
European gasoline stocks fell last month, but were 3.6 percent higher than a year ago, to leave supplies comfortable ahead of the peak summer driving season, industry monitor Euroilstock said on Wednesday.