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Oil fell towards $70 a barrel on Wednesday after U.S. government inventory data showed a build in crude stocks and weak economic data raised doubts about oil demand recovery in the world's largest energy consumer.
U.S. light, sweet crude fell 81 cents to $70.61 a barrel, giving away some of the gains that helped oil rise 13% since late last week.
U.S. crude inventories rose more than expected last week as refinery runs eased, while distillate stocks showed a surprise draw, according to weekly data from the U.S. Energy Information Administration (EIA) released on Wednesday.
Crude stockpiles in the world's top consumer rose by 1.7 million barrels in the week to July 31, against forecasts for an 800,000-barrel build as refinery utilization fell by 0.1 percentage point to 84.5%.
"The big build on crude caught some people by surprise and shows overall weakness in the economy and the unwinding of economic optimism. Nothing in the numbers was very bullish," said Phil Flynn, analyst at PFGBest Research in Chicago.
The EIA data followed inventory numbers on Tuesday from the American Petroleum Institute, which showed crude stocks fell 1.5 million barrels last week but gasoline stocks rose by a further 2.1 million barrels.
Oil was already lower before the release of inventory figures as doubts over economic recovery and demand for fuel resurfaced after weak U.S. services sector data depressed stock markets both sides of the Atlantic.
Expectations that a turnaround in the global economy could lift sagging oil demand has helped send crude up from lows below $33 a barrel in December, with energy traders keeping an eye on equities markets for signs of an economic rebound.
Investors were awaiting news from a meeting between trade representatives and Britain's financial powers, the UK Financial Services Authority (FSA) and the UK Treasury, which comes before a third Commodity Futures Trading Commission (CFTC) hearing in Washington over how to rein in speculation.
The UK meeting will discuss market transparency and efficiency, according to the FSA invitation to oil market participants, a copy of which has been seen by Reuters.
Energy traders also were watching an area of thunderstorms in the Atlantic Ocean several hundred miles southwest of the Cape Verde Islands associated with a tropical wave. The U.S. National Hurricane Center said it had less than a 30% chance of becoming a tropical storm.
