Oil drops for a second day after rally peters out

© Reuters. FILE PHOTO: A oil pump is seen at sunset outside Scheibenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann/File Photo

By Dmitry Zhdannikov

LONDON (Reuters) -Oil prices fell on Wednesday after U.S. crude inventories unexpectedly rose and amid concerns about a slowing Chinese economy.

Brent crude was down 62 cents, or 0.8 %, at $78.47 a barrel by 1300 GMT. On Tuesday, it fell nearly $2 after touching its highest in almost three years at $80.75.

U.S. oil prices dropped 40 cents, or 0.5%, to $74.89, having fallen 0.2% in the previous session.

Oil prices have been charging higher as economies recover from pandemic lockdowns and fuel demand picks up, while some producing countries have seen supply disruptions.

U.S. oil, gasoline and distillate stockpiles rose last week, according to market sources, citing American Petroleum Institute figures on Tuesday.

Analysts in a Reuters poll expected data from the Energy Information Administration in the United States due later to show a fall in crude stockpiles. [EIA/S]

“With the relative strength indexes …. on both contracts in overbought territory yesterday, the odds of a speculator-driven pullback were high,” said Jeffrey Halley, senior market analyst at OANDA.

Traders expect the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to decide to keep supplies tight when they meet next week.

“While the supply backdrop has not changed much, oil prices hitting $80 per barrel would see pressure building for OPEC+ nations to increase their production quota,” ANZ Research said in a note.

Oil demand is forecast to rise strongly in the next few years, OPEC said on Tuesday, sounding a warning that the world needs to keep investing in production to avert a crunch even as it transitions to less polluting forms of energy.

China’s weakening housing market and growing power outages have hit sentiment as any fallout for the world’s second-biggest economy would likely have a knock-on effect on oil demand, analysts said.

China is the world’s top oil importer and its second-biggest consumer of the fossil fuel after the United States.