Oil fell more than $1 on Thursday, erasing an earlier rally as a drop in US stock markets raised concerns about demand growth in the world's top consumer. London Brent crude settled down $1.14 to $75.18 a barrel. US oil - which rose more than $1.00 earlier to trade at a premium to Brent - lost 93 cents to settle at $74.95 a barrel.
"The (oil) market was forced to take a look at the stock market and they're seeing a 300-point drop, which is maybe not so good for petroleum demand," said Jim Ritterbusch of Ritterbusch and Associates of Galena, Illinois. US stocks plummeted on more signs of deterioration in the US housing market and problems in financing corporate take-over.
Oil rose on Wednesday after weekly US government inventory data released on showed a third straight draw in US crude stocks, including a 1.4 million barrel fall at the Cushing, Oklahoma, delivery point for US oil futures.
A glut of crude at the Cushing storage hub has kept the US benchmark at an atypical discount to North Sea benchmark Brent. But Cushing stocks have fallen for nine straight weeks and are around a quarter lower than their April peak when Brent was trading at a record premium to WTI of around $6 a barrel.
Oil output curbs by Opec would ensure a continuing decline in US crude stocks through the third quarter, experts said. "If the current Opec output trend continues, the cartel will remove on average in excess of one million bpd of supply versus last year in the third quarter, supporting a stronger than seasonal draw in US inventories (albeit from elevated levels)," BNP Paribas said.
Traders were also eyeing the shutdown of most of Exxon Mobil Corp's 326,000 bpd Fawley refinery, which accounts for almost a fifth of Britain's refining capacity. While bullish for gasoline and heating oil, the closure could be bearish for North Sea crude if the plant stops processing for a prolonged period. Exxon said on Thursday it plans to restart operations over the next several days.