Oil fell toward $69 on Wednesday, after surging more than 3 percent in the previous session on data that showed a surprise fall in U.S. crude stocks, boosting hopes of demand recovery in the world's top energy user.
The release of the more closely watched U.S. Energy Information Administration (EIA) data later in the day could confirm the American Petroleum Institute's (API) bullish figures, and will determine the market's trading tone for the rest of the week.
By 3:15 a.m. EDT, U.S. crude for September delivery was up 2 cents at $69.21 a barrel, off an earlier session high of $70.50. London Brent crude for October was down 27 cents at $72.10.
What's keeping the market down is high U.S. inventories, which is a proxy for demand, so the bullish API report has turned sentiment around, said Tony Nunan, risk manager at Tokyo-based Mitsubishi Corp.
If the EIA data confirms the API report, we could see the market head higher. The $76 level will be a top for the market in the medium term until we see further drawdowns in the inventories, he added.
API data released late on Tuesday showed that U.S. crude oil stockpiles fell last week by 6.1 million barrels, against forecasts for a 1.3 million barrel build.
U.S. distillate stocks rose by 1.5 million barrels, more than double what analysts had expected, while gasoline stocks fell less than forecast.
EIA figures will be released at 8:30 a.m. EDT.
Further boosting sentiment was Wall Street's strong performance on Tuesday, when U.S. stocks rebounded from sharp losses in the previous session, as better-than-expected results from big retailers encouraged investors to return to the market. <.N>
Earnings from major U.S. retailers Home Depot
Traders are also keeping an eye on storms in the Atlantic Basin, as any potential output disruption could boost prices, but there was no immediate threat seen to U.S. oil installations in the Gulf of Mexico.
The region is home to a quarter of U.S. oil output and 15 percent of its natural gas production.
Hurricane Bill, the first of the 2009 Atlantic season, grew quickly into a major Category 3 storm on Tuesday and could strengthen as it curves north, likely missing the eastern United States as it passes Bermuda.
Bill is expected to remain a large and powerful hurricane for several days, said the U.S. National Hurricane Center, but added that the storm posed no threat to oil installations in the Gulf of Mexico.
Meanwhile, Kuwait sees no need for OPEC to change oil supply targets at its meeting in September as the oil price is satisfactory, the country's oil minister said on Wednesday.
OPEC, supplier of over a third of the world's oil, meets on September 9 in Vienna to discuss supply policy.
(Editing by Ben Tan)