US oil settles down $1.62, or 2.64%, at $59.64 a barrel

Crude oil inventories decline 1.9M

Oil fell about 3 percent Wednesday as traders and investors ignored a fifth straight weekly decline in U.S. crude stockpiles to focus instead on a big build in distillates, including diesel, as the peak season for U.S. road travel got under way.

U.S. crude futures closed down $1.62, or 2.64 percent, at $59.64 a barrel. Front-month Brent futures fell $1.61, or 2.4 percent, to $63.90 a barrel.

Glum sentiment ahead of Friday's meeting of the Organization of the Petroleum Exporting Countries also weighed on the market. OPEC, which pumps more than a third of the world's oil, is expected to reject any calls for output cuts and it instead continue to produce about 2 million barrels per day above demand.

U.S. crude inventories fell 1.95 million barrels last week, more than the 1.7 million forecast by analysts in a Reuters poll, a report from the government-run Energy Information Administration showed.

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Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. oil also fell, along with gasoline stocks.

But distillate stockpiles, which included diesel and heating oil, rose by 3.8 million barrels, almost four times above the 1.1-million-barrel build forecast.

Oil prices, already volatile from the combination of a flighty dollar and the bearish mood over OPEC, briefly cut losses on the EIA report before heading lower.

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"I think the fact the market came back down after paring losses at first is telling of the sentiment that people don't really think this is a very bullish report," said analyst Gene McGillian of Tradition Energy in Stamford, Connecticut.

McGillian said consistent draws for gasoline and distillate draws would be a true indication of demand. "If not, with refinery runs of above 93 percent, we could end up with a glut of refined products in storage rather than crude now," he added.

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Analyst Carsten Fritsch of the Frankfurt-based Commerzbank agreed. "A market that does not rally on falling inventories and a slumping U.S. dollar looks vulnerable to the downside."

Comments by OPEC ministers in Vienna this week have reinforced the view that big Middle East oil producers will carry on pumping nearly flat-out for months to come.

"There is consensus among Gulf OPEC countries, and others, to keep the (production) ceiling unchanged," the OPEC delegate told Reuters in Vienna. "Nobody wants to rock the boat. The meeting is expected to be smooth sailing."