Oil settles down more than 2% amid gasoline stock build

Oil prices fall on oversupply worries

Oil prices fell more than 1 percent on Thursday, erasing gains from the previous session, after a rise in U.S. gasoline inventories pushed supplies in the world's top oil consumer to a record high, reinforcing worries of a global glut.

U.S. West Texas Intermediate crude for September delivery, the new front-month contract from Thursday, settled down $1, or 2.19 pct, at $44.75 a barrel, and last fell $1.04, or 2.27 percent to $44.71 a barrel at 2:41 p.m. ET.

The August contract expired on Wednesday after rising 29 cents, or 0.7 percent, to settle at $44.94 a barrel.

Brent crude's September contract was down $1.02 at $46.15 a barrel.

ABN AMRO senior energy economist Hans van Cleef said Brent could slip around $5 toward the $42-$43 a barrel level. "Near-term, there are still some downside risks."

Has crude found a bottom?

The glut of refined products has worsened an already-grim outlook for U.S. crude oil for the rest of the year and the first half of 2017, traders warned this week, as the spread between near-term and future delivery prices reached its widest in five months.

The Energy Information Administration (EIA) reported a crude inventory drop of 2.3 million barrels last week, versus forecasts for a 2.1 million barrels decline.

Despite nine straight weeks of draws, U.S. crude inventories are at a historically high 519.5 million barrels for this time of year, the EIA said.

Total U.S. crude and oil product stocks rose 2.62 million barrels to an all-time high of 2.08 billion barrels, as gasoline stocks posted a surprise build of 911,000 barrels, despite expectations that record numbers of Americans took to the road this summer amid cheap pump prices.

On top of the EIA report, traders on Thursday said market intelligence firm Genscape cited a build of 725,176 barrels during the week to July 19 at the Cushing, Oklahoma delivery point for U.S. crude futures.

"The market is technically weak, inventories are still high for summer, maintenance season is not far off and we have floating barrels at sea to top it all," said Pete Donovan, broker at Liquidity Energy in New York.

Lack of oil demand is weighing on markets: Analyst

A glut in oil products threatens to spill back into oil prices, depressing crude, BMI Research said in a note: "An abundance of fuels threatens to dampen crude demand."

Phil Davis, a trader at PSW Investments in California, pointed to the 4.2 million-barrel build of "other oils" cited by the EIA, which eclipsed the gasoline build.

The other oils include special gas for smaller airplanes and less-known industrial oils, which refiners typically crank out when there is too much gasoline and distillate supply, Davis said.

"These other oils don't get as much attention as the headline numbers put out by the EIA and have been a clever and convenient way to hide weak product demand," he said.

— CNBC's Tom DiChristopher contributed to this report.