Oil slipped toward $77 per barrel on Wednesday after an unexpected increase in U.S. crude stockpiles and a drop in U.S. consumer confidence fueled doubts about the pace of recovery in energy demand.
U.S. crude for September fell 35 cents at $77.15 by 4:19 a.m. ET, after reaching an early intra-day low of $76.88 a barrel. ICE Brent lost 28 cents to $75.85.
Prices touched $79.69 per barrel on Tuesday, their highest in almost 12 weeks, boosted by Wall Street gains and strong earnings by companies including DuPont and Co (DD.N).
But U.S. crude futures, also known as WTI, fell sharply after a report showed U.S. consumers in July were the least confident about the economy since February because of worries of a stagnant job market.
The American Petroleum Institute said U.S. crude inventories also posted a surprise increase of 3.1 million barrels last week, compared to a forecast decline of 1.6 million barrels.
Those figures pushed U.S. crude down to $77.50 by Tuesday's close, significantly well below the front-month contract's 200-day moving average.
"With trading volume at the lows of the year, continued stock builds, weakening product cracks, we will remain very cautious on any attempt to move above $80 per barrel on the wake of the S&P," Olivier Jakob, consultant at Petromatrix, said.
"WTI moved back below the 200-day moving average and both WTI and the S&P still need to prove that they can sustain that line as a support rather than a resistance."
Figures from the U.S. Department of Energy on stocks and demand will be released at 10:30 a.m. ET on Wednesday.
Those statistics are forecast to show U.S. crude oil stocks fell last week on a slip in imports and possibly some reduced production because of a storm threat in the Gulf of Mexico, a Reuters poll of analysts showed.
Refined products stockpiles were forecast to continue to show increases. For distillates, which include heating oil and diesel, the forecast was for a gain of 1.8 million barrels, the ninth consecutive weekly gain, while for gasoline, stocks should be up 400,000 barrels, the fifth straight increase in the middle of the U.S. summer driving demand season.
"Price-wise, given that most complexes are still on the top end of the trading range, we expect to see further erosion from here, especially if Wednesday's EIA numbers confirm the API trends," said Edward Meir, senior commodity analyst at brokers MF Global.
"However, we do not expect a sharp decline given that the energy complex is within a critical time window weather-wise, and prices therefore have the potential to turn on a dime."
The Organization of the Petroleum Exporting Countries ( OPEC ) has for the past year and a half expressed a preference for prices to remain stable around $75, saying that encourages investment to sustain and increase production capacity and does not threaten the economic recovery.
(Additional reporting by Alejandro Barbajosa in Singapore; editing by William Hardy)
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