Oil fell Wednesday after a U.S. government report showed American crude inventories rose unexpectedly last week, easing supply concerns.
U.S. light, sweet crude traded down on Tuesday to its lowest close since late June as Hurricane Dean, which had threatened oil installations in the Gulf of Mexico, lost power. But it edged up earlier on Wednesday, in line with some other commodities.
London Brent crude fell 4 cents to $68.65 per barrel.
Markets were awaiting news from Mexico about any potential damage to offshore production installations as Hurricane Dean passed over the Campeche Sound oil region.
Mexico, one of the top three suppliers of oil to the United States, shut 2.65 million barrels per day of output -- about 80 percent of total national production -- as a precaution as Dean barreled toward Campeche.
Oil prices have eased this week after Dean shifted away from energy facilities in the U.S. Gulf of Mexico, which faced severe disruptions from hurricanes in 2005.
Prices fell further after the U.S. Energy Information Administration reported crude stocks in the world's top consumer rose 1.9 million barrels last week, after analysts had forecast a 2.8 million barrel draw.
Gasoline stocks fell by 5.7 million barrels versus forecasts for a drop of 900,000 barrels as the United States headed toward the end of the summer driving season. Distillate stocks, including heating oil, rose 1.3 million barrels.
"The numbers are a little bit negative and I see a push-and-pull effect here between crude and gasoline," said Phil Flynn, analyst at Alaron Trading. "Ultimately, this is kind of a bearish report with focus on heating oil."
U.S. crude oil stocks remain plentiful, but the market is worried about a tighter supply picture developing over the coming months as the focus shifts toward heating oil supplies ahead of the Northern Hemisphere winter.
Hurricane Dean
Hurricane Dean moved out of the Campeche Sound and made landfall near Tecolutla, Mexico, as a Category 2 storm Wednesday.
President Felipe Calderon, speaking Tuesday before the storm hit the oil producing region, said production could be restored by Friday.
Analysts were awaiting reports from state oil firm Pemex on the state of Campeche oil facilities.
"Dean is projected to barrel through the heart of Mexican oil and natural gas offshore production facilities in the Bay of Campeche as a strong Category 2 or weak Category 3 hurricane and disruptions of oil and natural gas production could be significant," Goldman Sachs said in a research note.
Frederic Lasserre, head of commodities research at Societe Generale, said the market was still convinced that oil producer group OPEC, which will next meet Sept. 11 to set production policy, was undersupplying the market.
"Not for today but potentially for the months to come, so the big drop in stocks is still ahead of us," he said.
Oil prices have fallen back from a record high of $78.77 per barrel on Aug. 1, pressured partly by fears that turmoil in global financial markets could hurt economic growth.
World markets have been hit by fall-out from troubles in the subprime, or high-risk segment of the U.S. mortgage market.
But there are no clear signs yet of damage to the world economy from the credit market woes and oil demand remains robust.