Oil Drops Below $70 As US Fuel Stockpiles Rise

U.S. crude futures were trading 34 cents lower at $69.55 a barrel by 1535 GMT, having risen earlier to as high as $71.85.

Oil fell below $70 on Wednesday, reversing earlier gains, as U.S. government oil data showed increases in U.S. fuel inventories.

U.S. crude futures were trading 34 cents lower at $69.55 a barrel by 1535 GMT, having risen earlier to as high as $71.85. London Brent crude fell 27 cents to $69.03.

The U.S. Energy Information Administration (EIA) data showed a 2.3 million barrel increase in gasoline stocks and a 2.9 million barrel rise in middle distillate stocks, such as diesel. Both figures were larger than analysts' forecast.

Overall oil product demand over past weeks fell 5.8 percent from a year earlier.

The increases in product inventories overshadowed a 3.7 million barrel drop in crude oil inventories. The drop exceeded analysts' forecast but was smaller than the fall shown in industry group API's figures released on Tuesday.

"We were bound to give up some gains with those product builds. People have been hoping that an improving economy would be reflected in growing diesel demand and that isn't happening yet," said Gene McGillian, analyst with Tradition Energy in Connecticut.

Some pressure also came from an increase in output by OPEC producers in June.

A Reuters survey showed OPEC members' compliance rate to the agreed 4.2 million barrels per day supply curve at 72 percent in June, a fall from 75 percent in May.

On the other hand, the survey showed a fall in output in Nigeria. The recent escalation of civil unrest in its oil-rich Niger Delta region has hobbled Nigeria's output, providing support to oil prices.

On Tuesday, oil major Royal Dutch Shell said attacks by Nigerian militants had cut its onshore output to around half of what it was producing earlier this year.

Oil prices, which tumbled from a record high of over $147 struck in July last year to below $33 in December, have rallied in recent months due mainly to hopes for economic recovery.

They marked a 42 percent gain in the second quarter, the highest quarterly gain since 1990.

The equity market began the third quarter on an upbeat note, after the world MSCI index marked the highest quarterly gain since 1990 for the second quarter.

U.S. stocks were higher on healthy manufacturing data from key economies.