Oil fell almost $1 a barrel on Wednesday after a U.S. government report showed larger-than-expected increases in crude and gasoline stockpiles in the world's biggest consumer.
The U.S. Energy Information Administration said crude inventories rose by 6.9 million barrels last week, well over the 100,000 barrels forecast by analysts. Gasoline supplies were up 1.8 million barrels, almost double the market forecast.
"The completely unexpected build in crude stocks is the surprise of the day. And it is very bearish," said Tim Evans, analyst at Citigroup Global Markets.
U.S. light sweet crude for July delivery was down .
London Brent crude for August was down $1.76 at $70.10. It has rallied to a 10-month high of $72.25 on Monday on worries of disruption of supplies from Nigeria, the world's eighth biggest exporter.
Oil was down earlier after a general strike in Nigeria had yet to affect oil shipments from Africa's top exporter, although fears arose later the strike could soon start to bite.
Unions spared oil production and exports on the first day of the indefinite strike, but threatened to withdraw key staff of sector regulator, the Department of Petroleum Resources (DPR), from oilfields and export terminals by midnight on Wednesday.
"Between now and 12 midnight, we will withdraw our members from all DPR locations, including oil export terminals," Mohammed Saidu, branch chairman of the PENGASSAN union in the DPR, told Reuters.
The unions have pressed on with the strike despite a series of concessions offered by President Umaru Yar'Adua, who faces the first major test of his government three weeks after taking office.
Underlying Trend Bullish
Experts said the underlying factors remained bullish.
"The market is fundamentally very well supported," said Mike Wittner, global head of Energy Market Research at investment bank Calyon.
"Gasoline remains a big driver (and) gasoline in the U.S. remains tight. Going forward, the fundamentals remain well supported, especially with OPEC and Saudi Arabia not increasing production. Meanwhile there are a lot of geopolitical risks out these, as well as hurricane season coming up," he added.
Credit Suisse analysts said the oil price outlook was "tight" in the second half of 2007, supported by supply problems and ongoing demand growth.
"OPEC need to increase oil output and spare capacity looks tightly held in Saudi Arabia and Kuwait. Were OPEC to keep output unchanged, inventories would fall in the second half of 2007 and hurricane worries will inevitably resurface from August onwards," analysts at the bank said in a research note.