Oil falls towards $77 per barrel

Oil retreated towards $77 on Wednesday after posting its biggest percentage gain in four months a day earlier, as rising crude inventories in the United States damped optimism of a recovery in demand.

Crude stocks jumped by 4.7 million barrels last week, industry group the American Petroleum Institute (API) said in a report late on Tuesday. That compared to an average forecast gain of 200,000-barrel in a Reuters poll.

U.S. crude for March delivery fell 20 cents to $77.03 a barrel by 0513 GMT after soaring 3.8 percent on Tuesday, the biggest gain for a front-month contract since September 30. London ICE Brent crude for March slid 14 cents to $75.92.

However, oil is still nearly 48 percent below its July 2008 high of more than $147 a barrel.

“The U.S. is still showing weak demand figures,” said Stefan Graber, a commodities analyst with Credit Suisse in Singapore. “If we see new disappointing numbers, we could see the price increase slow down,” he added, referring to government oil inventory and demand data to be published later on Wednesday.

BULLISH INDICATORS

U.S. equities rose for a second day on Tuesday after positive earnings reports from economic bellwether companies United Parcel Service and Emerson Electric. A rise in pending home sales also helped bolster stocks.

Monday’s news that the Institute for Supply Management’s index rose to its highest since August 2004 raised expectations of a strong recovery in U.S. manufacturing.

“We’ve had several months of indicators that suggest that economic expansion is under way, and this is likely to translate into higher oil demand for industrialised countries,” Graber said.

U.S. gasoline stocks were forecast to have risen by 1.3 million barrels in the week to January 29 and total distillate stocks, including heating oil and diesel, were projected to have fallen 1.1 million barrels.

But U.S. oil consumption was still 2 percent below year-earlier levels in the four weeks to January 22, the EIA said last week.

“If we see overall oil demand in the U.S. improve, and that oil product inventories are being worked off, that would be a positive signal for the market,” Graber said.

The API said gasoline stocks fell 1.2 million barrels and distillate stocks shed 1 million barrels. The government’s Energy Information Administration (EIA) will release stockpile and demand statistics at 1630 GMT.

U.S. crude fell below $73 a barrel on Friday, shedding more than $11 from a 15-month high of almost $84 on January 11.

“The correction that we saw was really in line with the drop in risk appetite across markets,” Graber said. “With the global economic recovery on track, the positive fundamentals for specific commodity markets should be of more importance.”

Weekly throughput at Japanese refineries declined last week for the first time in five weeks, industry data showed on Wednesday, as milder winter weather weakened heating-fuel demand.

Source: Reuters