Oil fell for a fifth straight session to about $84 on Tuesday, almost erasing April's gains, as a forecast increase in U.S. crude inventories fanned concern about excess supplies and sluggish demand growth.
U.S. crude stockpiles probably rose for the 11th week in a row last week, a Reuters survey showed ahead of an industry supply report later on Tuesday.
The market is turning back into consolidation mode, said Stefan Graber, a commodities analyst with Credit Suisse in Singapore.
There have been fundamental improvements, but the last two weeks have not really shown that much improvement to warrant the strong move higher. There is not a lot of fresh impulse to push prices further.
Front-month West Texas Intermediate (WTI) crude, the U.S. crude benchmark, slid 17 cents to $84.17 a barrel at 2:59 a.m. ET, down almost $3 from an 18-month high of $87.09 a week ago.
ICE Brent crude, the marker for the Atlantic Basin and most of Europe, Africa and Asia, reasserted a premium it gained over WTI on Monday, the first time on a sustained basis this year.
Brent posted a smaller decline than WTI at 1 cent to $84.76.
WTI VERSUS BRENT
The abundance of crude in storage in Cushing, Oklahoma, the pricing point for WTI crude, occasionally triggers a disconnect between the U.S. benchmark and global crude markets better represented by Brent. Traders and analysts label this price divergence as dislocation.
On the WTI side we have the inventory situation simply not improving much further and lots of imports into the United States, Graber said. Crude that was outside in floating storage is also coming back onshore.
U.S. crude stockpiles probably gained 1.6 million barrels in the week ended April 9, the Reuters poll showed, while supplies of distillates including heating oil and diesel may have added 1 million barrels. Gasoline stocks were anticipated to have slid 700,000 barrels, according to the poll.
The American Petroleum Institute (API) will release U.S. inventory data on Tuesday at 4:30 p.m. ET, followed by government statistics from the Energy Information Administration (EIA) on Wednesday at 10:30 p.m. ET.
Support for oil prices could come from China's GDP data to be published on Thursday, Credit Suisse's Graber said.
The Chinese economy probably grew 11.5 percent in the first quarter, a Reuters survey showed. That would be the fastest year-on-year rate of growth since the third quarter of 2007.
China's March crude oil imports jumped to their second-highest monthly level on record of 4.95 million bpd, up 2.5 percent from February on a per-day basis.
China's oil imports were strong numbers and it confirms that the uptrend in Chinese consumption remains intact, Graber said. But China alone doesn't seem to enough to keep the rally going.
China plans to raise retail diesel and gasoline prices as early as Wednesday, a source familiar with the issue told Reuters on Tuesday.
Speculation has been rampant that China might increase retail fuel prices to match rising crude, with most analysts saying that the price rise could be around 300 yuan ($44) per tonne but others expecting it could be as high as 500 yuan per tonne.
The discount at which the front-month crude futures contracts trade to the second month, known as contango, stayed at about $1 a barrel for both WTI and Brent amid unusually high inventories.
Some analysts expect that recovering demand later this year will drain stockpiles, causing the discount to shrink or even disappear. The market could even flip into the opposite market structure, known as backwardation, where the front-month contract trades at a premium to future contracts.
(With additional reporting by Wang Tao; Editing by Clarence Fernandez, Himani Sarkar)