Oil falls on demand concerns

Crude oil dropped after an industry report showed that US supplies rose for the first time in six weeks as refineries cut operating rates, curbing demand.

Futures fell as much as 0.9 per cent after the American Petroleum Institute said late yesterday that crude supplies rose 2.34 million barrels to 359.4 million last week. Oil consumption slipped 10 per cent to 13.7 million barrels a day, the lowest level since April.

An Energy Department report today will show a 1.5 million-barrel drop, according to a Bloomberg News survey.

"If the government numbers today are like the bearish API inventory report, the market will come under further downward pressure," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. "If the government report isn't as bearish, we could be looking forward to a choppy market today."

Brent oil for August settlement declined 62 cents, or 0.5 per cent, to $117.13 a barrel on the London-based ICE Futures Europe exchange.

Crude oil for August delivery fell 40 cents, or 0.4 per cent, to $97.03 a barrel at 9.13am on the New York Mercantile Exchange was at $97.49 a barrel. Prices have risen 26 per cent in the past year.

The European benchmark's premium to US futures narrowed to $20.10 from $20.32 at settlement yesterday and a record $22.29 on June 15th.

Futures rose earlier when a report showed China's economy grew at a faster pace than expected in the second quarter and as the International Energy Agency forecast rising consumption.

China's gross domestic product and industrial output grew 9.5 per cent from a year earlier, higher than the median estimate of 9.3 per cent in a Bloomberg News survey. Growth was 9.7 per cent in the first three months of the year.

Industrial output last month climbed the most since May 2010.

Global oil demand growth is set to accelerate in 2012, the IEA said, potentially adding pressure on the Organization of Petroleum Exporting Countries to boost production.

Crude consumption next year will average 91 million barrels a day, an increase of 1.5 million barrels, or 1.6 per cent, from 2011, the IEA said in its monthly oil market report. That compares with Opec's forecast that world oil demand will grow at a slower pace for a second year in 2012 as consumption declines in Europe and slows in other industrialised nations.

Bloomberg