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Oil drops as investors lock in gains; surprise US stockpile build

[SINGAPORE] Crude futures fell on Wednesday as investors locked in gains after oil prices surged nearly 5 per cent in the previous session, partly on forecasts from the US government and Opec that demand would increase next year.

Oil prices were also under pressure from industry data that showed a surprise build in US crude stocks, price gains in other commodities including gold and a stronger US dollar which gained against a basket of currencies, analysts said.

"We are on the cusp of US weekly production statistics - the market is keeping a close eye on that. There is maybe a little bit of profit taking ahead of the stats," said Ben Le Brun, market analyst at Sydney's OptionsXpress.

Brent futures fell 37 US cents to US$48.10 a barrel as of 0339 GMT after settling up US$2.22, or 4.8 per cent, in the previous session.

US crude dropped 28 US cents to US$46.52 a barrel after ending the previous session up US$2.06, or 4.6 per cent.

Those were the biggest daily gains since April 8.

"We do see a bit of counter-cyclical trade going on in the Asia time zone. Gold is a little higher, equity markets are strong, but not as strong previously, the dollar is up," said Ric Spooner, chief market analyst at Sydney's CMC Markets.

"The market is concerned about the momentum in oil prices and whether that will be maintained or not," Mr Spooner added.

The American Petroleum Institute on Tuesday said US crude inventories rose by 2.2 million barrels in the week to July 8 to 523.1 million barrels, compared with analysts' expectations for a decrease of 3 million barrels.

The US Department of Energy's Energy Information Administration (EIA) will release official weekly inventory data later on Wednesday.

"Yesterday's API data might be making traders a bit nervous ahead of official US stocks data today," Mr Spooner added.

While the EIA on Tuesday cut its US and world oil demand growth forecast for this year, it increased its demand growth estimates for 2017.

The Organization of the Petroleum Exporting Countries also said demand for the producer group's oil in 2017 would be higher than its current production.

Credit Suisse raised its 2016 oil price forecasts on Wednesday. The bank forecast WTI would average US$43.59 per barrel this year versus US$36.91 in its earlier forecast, and US$55.00 for 2017, versus US$52.88 earlier.

Brent will average US$44.53 a barrel this year, up from US$37.77, and average US$56.25 in 2017, up from US$54.25 earlier.

Oil markets are also eyeing the impact of an international court ruling on Tuesday that China has no historic title over the waters of the South China Sea potentially putting it in conflict with other countries in the region which have rival claims.