LONDON: Brent crude oil fell by almost $2 on Wednesday after a new build in U.S. crude stock levels put a global glut back in focus, cutting short a four session rally that pushed prices up to a high of $59 on Tuesday.
The recent rebound had increased speculation that prices may have hit a bottom, after a seven-month rout slashed oil futures by nearly 60 percent and prompted major energy firms to cut spending on new production.
But a report from the industry group American Petroleum Institute showing U.S. crude stocks rose more than 6 million barrels last week pushed prices down on Wednesday.
Brent was $1.90 lower at $56.01 a barrel by 1440 GMT, after reaching an intraday high of $59 on Tuesday and off a near six-year low of $45.19 reached in mid-January. U.S. crude futures were down $2.50 at $50.55 a barrel.
"We believe that despite the strength of the recent rally, crude oil prices have not yet bottomed and we are not yet at the start of a sustained price recovery." said analysts at Macquarie Capital in a note, citing a short term supply glut in the first half of the year.
The fall in prices "makes perfect sense after the marked increase since Friday. A degree of reversal should be expected given stock builds globally," said Gareth Lewis-Davies, senior oil strategist at BNP Paribas
The U.S. government's Energy Information Administration (EIA) is expected to release its data on stocks at 1530 GMT on Wednesday.
Hans van Cleef, senior energy economist at ABN Amro bank in the Netherlands, said that investors were selling oil futures to take advantage of the recent rally, ahead of the EIA announcement this afternoon.
"We've seen a steep recovery in the past few days, so some profit taking doesn't sound too strange in my view," he said.
The dollar, the currency in which oil futures are traded, rose against a basket of currencies by 0.41 percent, making dollar traded commodities more expensive.
The outlook for oil demand has also been muddied by data showing China's services sector grew at the slowest pace in six months in January.
A sharp drop in the number of U.S. oil rigs and a wave of budget cuts by major energy companies has led to speculation that global oil production would fall faster than expected.
"Prices are looking for a level to stabilise around for a few weeks or months. It's looking like it could be in the fifties," said Richard Mallinson, an analyst at Energy Aspects.
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