SINGAPORE: Crude prices fell below $72 on Wednesday on a slightly stronger US dollar, reversing earlier gains of as much as 0.6 percent boosted by forecasts of a second weekly fall in US inventories.
Prices tracked volatile equities in the past two days, paring gains on Tuesday after a report from the Institute for Supply Management (ISM) showed a slowdown in the US service sector. But the expected tightening of US crude and gasoline supplies allowed oil to shrug off falling Asian equities on Wednesday.
US crude for August fell 24 cents to $71.74 a barrel by 0706 GMT on Wednesday after advancing as much as 40 cents to $72.38 a barrel earlier. ICE Brent for August fell 25 cents to $71.20.
"Yesterday’s non-manufacturing data fell more than expected, so investors have a wait-and-see approach," said Serene Lim, a Singapore-based oil analyst with ANZ.
"The market is pricing in a drop in crude inventories, but if inventories fall less than expected, we might see prices falling."
US crude stockpiles probably fell 2.6 million barrels in the week to July 2, a Reuters survey showed on Tuesday, as imports may have dropped for a second straight week.
Gasoline inventories were forecast down 300,000 barrels on average, following a surprise modest build in the prior week, while supplies of distillates, including heating oil and diesel, probably posted their sixth straight weekly increase, adding 1.5 million barrels.
The American Petroleum Institute will publish weekly inventory data on Wednesday at 2030 GMT, followed by government statistics from the Energy Information Administration (EIA) on Thursday at 1500 GMT.
Both reports come a day later than usual because of the independence day holiday on July 5.
Asian stocks fell on Wednesday as investors worried global growth was faltering, while the euro held near a 7-week high as investors pared long positions in the dollar on doubts about the resilience of the US recovery.
"Investors are still very concerned about the economic outlook," said Lim, adding that prices may test the $68-$70 range before the end of the month.
"I don’t think oil could decouple from the stock markets. It’s quite highly correlated these days. Whatever is going to happen in the stock market will have some impact on crude prices."
A weather system over Mexico’s Yucatan peninsula and the eastern Gulf of Mexico had a 30 percent chance of developing during the next two days into a tropical cyclone, a category that includes tropical storms and hurricanes, the US National Hurricane Center said late on Monday.
The system’s course so far has been similar to that of Hurricane Alex, which in late June forced Mexican oil terminals to shut and US producers to curb output.
Global oil output will rise faster than first expected in 2010 with a strong rebound in prices from the depths of the crisis ensuring growing demand will not stretch supplies for at least another year, a Reuters poll of 10 top oil-tracking analysts and organizations found on Tuesday.