Oil struggles to build on a rally fueled by upbeat supply data

New York (Aug 4)  Oil prices fell Thursday, failing to follow up on a rally that sent prices above $41-a-barrel overnight, with the rise triggered by a decline in the glut of refined fuel.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September CLU6, -0.24%  dipped 15 cents, or 0.3%, to $40.69 a barrel. Prices rose above the $40 mark after tipping below that level earlier this week, for the first time in three months. Overnight, futures touched as high as $41.41 a barrel, according to FactSet Research.

October Brent crude LCOV6, -0.65%  on London’s ICE Futures exchange dipped $0.32, or 0.7%, to $42.77 a barrel, after rallying $1.30, or 3.1% to $43.10 a barrel Wednesday.

U.S. oil shot up $1.32, or 3.3%, to settle at $40.83 a barrel on Wednesday after U.S. government data surprised traders with a 3.3 million-barrel decline in gasoline inventories there. Changes to fuel inventories are of particular interest to traders, as a renewed glut of fuel has pushed oil prices lower in recent weeks. Oil prices had entered a bear market, defined as a fall of 20% or more from a recent high, earlier in the week.

The deep fall in gasoline stockpiles contrasted with a rise in crude inventories, but “the market chose to ignore the bearish, counter-seasonal and surprising build in crude oil,” said Michael Wittner, energy analyst at Société Générale,

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The focus in the oil market in recent weeks has once again shifted to the perceived supply glut worldwide. Many market watchers had expected the supply and demand to return to balance later this year, helped in part by strong demand for imported oil in China. Yet anticipation has risen in recent weeks that more production may return to market from Libya and Nigeria, both of which have been beset by supply disruptions in recent months.

Source: MarketWatch