Oil sinks despite US energy report

Oil prices sank Wednesday, despite signs of strong US demand, as traders priced in the impact on supplies of Iran's historic nuclear deal with Western powers.

The market was also pushed lower by the rebounding greenback, as Federal Reserve Chair Janet Yellen indicated an interest rate hike was still seen in 2015.

In late afternoon London deals, Brent North Sea crude for delivery in August lost $1.10 to stand at $57.39 a barrel.

US benchmark West Texas Intermediate for August shed $1.32 to $51.73 per barrel compared with Tuesday's closing level.

"Oil's failure to respond positively to the (US) stocks data suggests that the prospect of additional oil supply from Iran is still weighing on the sentiment," said analyst Fawad Razaqzada at trading site Forex.com.

"Crude is also held back by a rallying US dollar after Janet Yellen's hawkish remarks increased the possibility of a 2015 hike," he told AFP.

A stronger US unit which makes dollar-priced crude more expensive for buyers using weaker currencies, thereby hitting demand and price levels.

The oil market had risen Tuesday as investors were confident it would take time for Iran to start exporting more crude to a market awash with supplies.

Iran and major world powers on Tuesday reached a deal to monitor Tehran's nuclear programme, which the West says will curb its efforts to build a nuclear bomb.

Iran's compliance with the terms of the agreement will lead to a lifting of crippling Western economic sanctions which have restricted its key oil exports.

The negotiators gave no specific dates for the implementation timeframe, other than saying it would begin "upon conclusion of the negotiations".

"It is gradually dawning on market participants that Iran will not be making any rapid return to the oil market even after the historic agreement," Commerzbank analysts said.

"The agreement first has to be ratified by the UN and by the US Congress. Then Iran has to implement the conditions set out in the agreement, and the International Atomic Energy Agency has to confirm this in a report. Only then will sanctions be eased."

Iran is exporting about one million barrels per day of crude, sharply down from the 2.2-2.3 million it was selling overseas before the sanctions were imposed in mid-2012, according to energy data provider Platts.

Elsewhere on Wednesday, the US government's Department of Energy reported that crude reserves tumbled by 4.3 million barrels in the week to July 10.

That was more than double market expectations for a 1.9-million-barrel decline, according to analysts polled by Bloomberg.

That signalled strengthening demand in the world's biggest consumer of oil.

"The weekly oil inventories report was very optimistic, showing a large decline in crude oil inventories, but failed to provide any support to crude oil prices," noted Sucden analyst Myrto Sokou.

"The strong dollar weighed sharply on market sentiment and dragged crude oil prices lower in the afternoon session."

American gasoline or petrol inventories meanwhile rose 100,000 barrels last week, which was less than expectations for a gain of 450,000 barrels.

Distillates -- including diesel and heating fuel -- added 3.8 million barrels, beating predictions for an increase of 1.46 million.