NEW YORK (Reuters) - Oil settled 2 percent lower on Tuesday as the market yielded to technical pressure and worries that U.S. crude stockpiles were still growing amid falling output and refinery maintenance.
Uncertainty over how the U.S. Federal Reserve will word its policy statement on Wednesday also fed jitters in financial markets and pushed oil down for a second day in a row.
Crude prices pared losses in post-settlement trade after preliminary inventory data from industry group American Petroleum Institute (API) showed U.S. crude stockpiles rose by 1.5 million barrels last week, less than half the 3.4 million barrel build forecast by analysts in a Reuters poll. [API/S]
The U.S. government’s Energy Information Administration (EIA) will issue official inventory data on Wednesday.
Brent LCOc1 settled down 79 cents at $38.74 a barrel, a 2 percent drop similar to Monday's.
U.S. crude CLc1 finished down 84 cents, or 2.3 percent, at $36.34. In the previous session, it fell 3 percent.
After the API data, both Brent and U.S. crude retraced some losses and were about 1 percent down.
Crude had rallied about 50 percent over the past six weeks as major oil producers spoke of plans to freeze output at January levels. The talk boosted a market that had sunk to 12-year lows on a supply glut.
But the production freeze plan by OPEC and Russia has made little progress, with No. 4 oil producer Iran still determined to double or restore its crude exports to pre-sanction levels before limiting any output.
“The rally is now retreating on fears that OPEC will continue to flood the market with oil in a world where demand may falter,” said Phil Flynn, analyst at the Price Futures Group in Chicago.
Oil has encountered technical fatigue since last week’s run to three-month highs of more than $41 on Brent and above $39 on U.S. crude, analysts said.
“The rot is setting in,” chart watchers at PVM Associates in London said in a note, pointing to potential near-term threat to support for Brent at $38.34 and for U.S. crude at $36.04.
But some said it was too early to call the rally over.
“While the advance in crude oil prices has paused, I think the bears might have been hoping for a larger reaction to the downside,” said David Thompson at Washington-based commodities brokerage Powerhouse. “If prices were to break below $35, then my view would turn more bearish.”
Additional reporting by Amanda Cooper in LONDON; Editing by Marguerita Choy and David Gregorio
Our Standards: The Thomson Reuters Trust Principles.