Oil price down, glut eyed

"Asia refiners have already started to pull back ... and there are reports of (oil) cargoes struggling to sell," said Adam Longson of Morgan Stanley this week in a note to clients, adding that demand in the third quarter could fall further. (An employee walks past oil tanks at a Sinopec refinery in Wuhan, Hubei province. - Reuters filepic)

NEW YORK: Oil prices fell as much 1 percent for a second day in a row on Tuesday as a rallying dollar and a global fuel glut offset forecasts for lower U.S. crude stockpiles that typically would have been bullish for the market.

U.S. crude stockpiles fell by 2.3 million barrels last week, trade group American Petroleum Institute (API) reported. That was just above a 2.1 million-barrels draw forecast in a Reuters poll. The U.S. government's Energy Information Administration (EIA) will issue inventory data on Wednesday.

If the EIA confirms a drawdown, it will be the ninth straight week that U.S. crude stockpiles have fallen.

Even so, the market's attention has been on an unexpected oversupply in fuels during the U.S. peak summer driving season. As storage on land tightened in recent weeks, fuel prices weakened, prompting traders to store diesel on tankers at sea for later delivery. Even if crude output tapers, some say the glut may continue to pressure prices.

"Unless crude imports fall totally out of bed, there's ample oil in the tanks, and the headline numbers for crude won't be as bearish as the total numbers," said Kyle Cooper, oil markets consultant for New York-based broker ION Energy.

For distillate inventories including diesel, API reported a surprise draw of 484,000 barrels. It also said there was an unexpected gasoline build of 805,000 barrels.

"We expect fresh lows by tomorrow that should force out some recently acquired speculative longs that have been entering the market amidst the price consolidation of the past eight to nine sessions," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Brent crude settled down 30 cents, or 0.6 percent, at $46.66 barrel. It fell 1.4 percent on Monday.

U.S. West Texas Intermediate crude fell 59 cents, or 1.3 percent, to settle at $44.65. WTI lost 1.6 percent in the previous session.

Brent's premium to WTI reached its highest since the end of April, raising the export potential for U.S. crude.

Both benchmarks were little changed after the API data.

Also weighing on oil was the dollar's rally to a four-month high, making greenback-denominated oil less affordable for holders of the euro and other currencies.

Earlier in the session, a protest over wages that shut the eastern Libyan oil terminal of Hariga and forced a suspension of 100,000 barrels per day of crude production helped the market limit some losses. - Reuters