* Stock markets, supply reports to set direction for prices
* Coming Up: API U.S. inventory report; 2030 GMT
* For a technical view, click: []
(Recasts, updates prices)
By Alejandro Barbajosa
SINGAPORE, July 7 (Reuters) - Crude prices fell below $72
on Wednesday on a slightly stronger U.S. dollar, reversing
earlier gains of as much as 0.6 percent boosted by forecasts of
a second weekly fall in U.S. inventories.
Prices tracked volatile equities in the past two days,
paring gains on Tuesday after a report from the Institute for
Supply Management (ISM) showed a slowdown in the U.S. service
sector. But the expected tightening of U.S. crude and gasoline
supplies allowed oil to shrug off falling Asian equities on
Wednesday.
U.S. crude for August <CLc1> fell 24 cents to $71.74 a
barrel by 0706 GMT on Wednesday after advancing as much as 40
cents to $72.38 a barrel earlier. ICE Brent for August <LCOc1>
fell 25 cents to $71.20.
"Yesterday's non-manufacturing data fell more than
expected, so investors have a wait-and-see approach," said
Serene Lim, a Singapore-based oil analyst with ANZ.
"The market is pricing in a drop in crude inventories, but
if inventories fall less than expected, we might see prices
falling."
U.S. crude stockpiles probably fell 2.6 million barrels in
the week to July 2, a Reuters survey showed on Tuesday, as
imports may have dropped for a second straight week.
Gasoline inventories were forecast down 300,000 barrels on
average, following a surprise modest build in the prior week,
while supplies of distillates, including heating oil and
diesel, probably posted their sixth straight weekly increase,
adding 1.5 million barrels. []
The American Petroleum Institute will publish weekly
inventory data on Wednesday at 2030 GMT, followed by government
statistics from the Energy Information Administration (EIA) on
Thursday at 1500 GMT. Both reports come a day later than usual
because of the independence day holiday on July 5.
CORRELATION WITH STOCK MARKETS
Asian stocks fell on Wednesday as investors worried global
growth was faltering, while the euro held near a 7-week high as
investors pared long positions in the dollar on doubts about
the resilience of the U.S. recovery. []
"Investors are still very concerned about the economic
outlook," said Lim, adding that prices may test the $68-$70
range before the end of the month.
"I don't think oil could decouple from the stock markets.
It's quite highly correlated these days. Whatever is going to
happen in the stock market will have some impact on crude
prices."
For a graphic of the correlation between oil and stock
markets:
http://graphics.thomsonreuters.com/gfx/ABE_20100707114627.jpg
A weather system over Mexico's Yucatan peninsula and the
eastern Gulf of Mexico had a 30 percent chance of developing
during the next two days into a tropical cyclone, a category
that includes tropical storms and hurricanes, the U.S. National
Hurricane Center said late on Monday.
The system's course so far has been similar to that of
Hurricane Alex, which in late June forced Mexican oil terminals
to shut and U.S. producers to curb output.
Global oil output will rise faster than first expected in
2010 with a strong rebound in prices from the depths of the
crisis ensuring growing demand will not stretch supplies for at
least another year, a Reuters poll of 10 top oil-tracking
analysts and organisations found on Tuesday. []
(Editing by Clarence Fernandez)
