LONDON: Oil prices pared early gains of nearly 2 percent on Thursday to pull back to near $73 a barrel, as traders waited to see if US government data would confirm an industry report showing falling crude stockpiles.
US crude prices for July rose as high as $74.40 in early trade, before dipping to trade up just 31 cents at $73.17 a barrel by 1111 GMT. ICE Brent rose 37 cents to $74.12 a barrel by the same time.
Prices jumped in early trade following a report from the American Petroleum Institute (API) showing a much larger than expected drop in US crude stockpiles last week.
But prices pulled back as traders turned cautious, waiting to see if the 1.4 million barrel drop reported by the API would be confirmed by the weekly data from the US Energy Information Administration data at 1500 GMT.
Analysts polled by Reuters have predicted a far smaller 100,000 barrel fall.
Optimism after strong US housing data and double-digit auto sales growth also extended into Thursday, boosting equities in Asia and Europe and pressuring the US dollar.
"We’ve seen oil prices taking their cues to a large degree from equity market movements," said Toby Hassall, chief commodities analyst at CWA Global Markets
"If this spike in risk aversion is reversing, you might expect the US dollar to give up some recent gains," Hassal said.
"That improvement in risk appetite might feed into oil prices, and the typical seasonal decline in stockpiles in the US would also be supportive."
The API also said gasoline stocks in the United States fell by 962,000 barrels last week, compared with forecasts for a 500,000 barrel decline.
Stocks of distillates, which include diesel and heating oil, rose by 852,000 barrels, above expectations for a 100,000 rise.
Concern about a slowdown in China’s economy weighed on oil prices earlier this week, hitting sentiment already battered by Europe’s debt crisis.
But US pending home sales in April rose more than expected to a six-month high, the third consecutive month of gains, fuelling optimism that an economic recovery is gaining steam in the world’s top economy.
Oil prices have traded in a range between $71.64 and $75.33 since Monday, torn between evidence that the world’s biggest oil-consuming nations are posting steady demand growth and speculation that consumption will be hurt by a stagnant European economy.
"Crude demand will ease slightly ahead of the seasonal pick-up in the second half of this year, but we remain confident it will still grow strongly in 2010," VTB Capital analyst Andrey Kryuchenkov said. –Additional reporting by Alejandro Barbajosa