Posted: 02 July 2009 0417 hrs

An attendant fills a car with petrol at a service station.

NEW YORK: Oil prices fell on Wednesday after bouncing above 71 dollars as markets reacted to a mixed report on US petroleum inventories.

New York's main contract, light sweet crude for August delivery fell 58 cents from Tuesday's closing price to 69.31 dollars a barrel.

Brent North Sea crude for August delivery lost 51 cents to 68.79 dollars per barrel.

The US Department of Energy said in its weekly report that American crude oil reserves tumbled 3.7 million barrels in the week ending June 26, the fourth weekly drop in a row.

The market had expected a lighter decline of 2.1 million barrels.

But the department also reported growing domestic inventories of key refined products gasoline and distillates.

Gasoline or petrol stocks rose 2.3 million barrels, and distillates, which include diesel and heating duel, increased by 2.9 million barrels last week.

"Product demand is simply awful. Products built more than expected, and the expectations were already bearish," said Hussein Allidina of Morgan Stanley Research.

Prices had dropped Tuesday from eight-month peaks above 73 dollars after new data showed a plunge in American consumer confidence.

In the second quarter of 2009, oil had jumped dramatically - by 40 percent, or more than 20 dollars - on rising confidence that the global slump is easing.

Barclays Capital said in a report on Wednesday that oil prices cannot be sustained below 70 dollars into the medium term.

"We see prices as being likely to stay largely within the 65-75 dollars range in the current quarter, with brief forays possible either side of that range, and have adjusted price forecasts to reflect that core view," it said.

The market remains concerned by tensions in key crude producer Nigeria.

Nigerian rebels on Monday announced a new raid against a Shell oil facility and said they had killed at least 20 soldiers in a gun battle, a claim denied by the security forces.

While a Shell spokesman confirmed the raid and said it had caused a loss of production, Nigeria's combined police and army joint task force (JTF) denied there had been any clash with the rebels.

The Niger Delta has since 2006 been rocked by violence by armed groups who say they are fighting for a greater share of the region's oil wealth for the local population. - AFP/de

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