US crude settles down 25 cents at $60.50 per barrel

Futures Now: Crude's next move
Futures Now: Crude's next move
Will the oil uptrend continue?
Will the oil uptrend continue?
US still depends on Middle East oil: Analyst
US still depends on Middle East oil: Analyst

U.S. oil futures closed down 25 cents at $60.50 a barrel on Wednesday despite crude stockpiles slipping for a second straight week, but traders and analysts said inventories were still hefty for this time of year and could undercut the market's advance.

Crude futures have risen between 20 and 25 percent over the past six weeks on signs that increasing demand ahead of the peak U.S. driving season could ease a supply glut.

U.S. government data showed oil inventories fell 2.2 million barrels in the week to May 8 to below 485 million barrels, compared with analysts' expectations for an increase of 386,000 barrels. Gasoline and distillate stockpiles also declined.

Read MoreOil prices: National GDP winners and losers

Oil futures rallied right after the Energy Information Administration released the data, but quickly pulled off their highs, with U.S. crude briefly slipping into the negative, as analysts struggled to explain a report that seemed to have few bearish qualities.

"We are still about 20 percent higher than a year ago in terms of inventories," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York.

"We need to lose at least 1.5 million barrels a day from production to balance the market, but that seems not likely with the marginal cuts in U.S. output so far and OPEC looking to produce as much as it can into this market."

Oil's massive move isn't over: Pro
Oil's massive move isn't over: Pro

Brent for June was down 18 cents at $67.20 a barrel by 2:33 p.m., after hitting a session high at $68.05.

Oil was also supported by the dollar's plunge to a three-month low against a basket of currencies, following weak retail sales data for April.

Read MoreGoldman is right. Oil is due for a pullback: Technician

Some said the EIA report signalled improved fundamentals for U.S. crude, citing the near 1 million-barrel drop in supply at the crude futures delivery hub of Cushing, Oklahoma as one

"The report is clear cut in its bullish message to the market," said John Kilduff, partner at Again Capital LLC.

But others argued that refinery runs were down last week while imports up and production both showed an uptick. "To me, the data still looks suspect," said Dominick Chirichella, partner at the Energy Management Institute in New York.