Oil fell below $74 a barrel today, down for the first time in six days as Chinese shares plummeted on renewed concerns over the economic recovery, after reaching a 10-month high a day earlier.
Investors are looking to oil inventories in the United States for direction, with analysts calling for a draw in crude and gasoline stocks and an increase in distillates.
US crude futures for October fell 54 cents to $73.83 a barrel after hitting their highest intraday mark since October 21st at $74.81 yesterday. Brent crude lost 57 cents to $73.69.
An initial Reuters poll showed crude inventories for the week ended August 21st fell by 900,000 barrels, much smaller than the unexpected 8.4 million-barrel draw in the week before, as imports stayed low and refinery utilisation rose.
But forecasters called for a 200,000-barrel rise in distillate stocks, while gasoline inventories could also have eased by 900,000 barrels, as demand may have improved on late summer vacation driving, which would make it the fifth straight week of falls.
Data from the American Petroleum Institute will be released later today, while the US. government data is due out tomorrow.
While the race towards $75 over the past week was spurred by the equities rally, with the Dow Jones index also briefly touching 10-month highs yesterday, oil prices were hit by falling Asian stocks today, led by China.
The Shanghai stock index plunged more than 5 per cent after premier Wen Jiabao said Beijing would keep its monetary policy loose as the economy faces new difficulties, including trouble boosting domestic consumption, while Hong Kong stockslost almost 2 per cent.
Chinese shares extended their fall despite optimistic remarks from a senior government economist who said investors had over-reacted to recent talk of monetary policy fine-tuning and that the sell-off in the stock market would be short-lived as the recovery in China's economy was solid.
Also sounding upbeat, an official with the State Administration of Foreign Exchange said China was likely to see rising capital inflows over the rest of this year as its economy recovers.
Reuters