Oil drops despite falling US reserves

World oil prices fell back Wednesday despite news of a seventh weekly drop in US crude stockpiles, and ahead of a Federal Reserve interest rate decision.

US benchmark West Texas Intermediate for delivery in July fell 60 cents to $59.37 a barrel compared with Tuesday's closing level.

Brent North Sea crude for August delivery shed 66 cents to $63.04 a barrel in late afternoon deals in London.

The US government's Department of Energy reported that American commercial crude inventories sank by 2.7 million barrels in the week ending June 12.

That was the seventh weekly drop and was heavier than market expectations for a decline of 1.8 million, according to analysts polled by Bloomberg News.

"Crude oil prices reversed earlier gains and retreated sharply in the afternoon session," said Sucden analyst Mytro Sokou.

"The weekly (DoE) oil inventories report failed to provide any upside momentum as crude oil stocks at the key location of Cushing, Oklahoma, rose 112,000 (barrels) versus expectations of a 837,000 drop.

"The most important issue was the US refinery utilisation dropped significantly by 1.5 percent last week suggesting a slowdown of the US oil demand."

The oil market had jumped by a dollar in earlier deals on Wednesday, one day after industry body the American Petroleum Institute signalled a larger drop in crude oil stocks of 2.9 million barrels for last week.

"Crude inventories did decrease for the seventh time in as many weeks -- though by just 2.7 million barrels, which disappointed those who were hoping for a reading of 2.9 million or higher," added Forex.com analyst Fawad Razaqzada.

"What’s more, crude inventories at Cushing... unexpectedly rose."

Cushing, Oklahoma, is the main US oil storage facility that houses crude pumped in Texas -- West Texas Intermediate, used in the benchmark futures contract in the New York market.

Falling US stockpiles tend to be regarded as an indicator of healthy demand in the world's top crude consumer, and so this tends to boost the oil market.

However, the DoE also reported that gasoline or petrol stockpiles climbed by 500,000 barrels, confounding expectations for a drop of 800,000 barrels.

Traders have been hoping that a drawdown of the United States' burgeoning oil reserves during the summer, coupled with a slowdown in its shale output, could whittle down the global supply glut.

A surplus of US stocks was a key reason why oil prices collapsed by more than 50 percent between June 2014 and January.

Elsewhere, markets are hoping for some clues about the US central bank's timing for an interest rate rise following a broadly upbeat string of data on the world's top economy in recent weeks.