Oil falls slightly as U.S. product stocks rise

A meter measuring barrels of oil sold is seen aboard Chevron's Petronius oil platform, located 100 miles (161km) off the coast of New Orleans, in the Gulf of Mexico on June 3, 2008.

NEW YORK (Reuters) - Oil fell slightly on Wednesday, weighed down rising U.S. stockpiles of gasoline and distillate fuels and weak demand.

U.S. gasoline stockpiles rose by 800,000 barrels in the week to July 17, matching analysts' expectations, according to the U.S. Energy Information Administration. <EIA/S>

Inventories of distillates, including heating oil and diesel, rose to a fresh 25-year high. The build came as demand for the fuels, which are linked to industrial activity, fell by 11 percent over the past four weeks against year-ago levels.

Overall U.S. product demand fell by 4.8 percent against the same period last year and refinery utilization dropped by 2.1 percentage points in the midst of the summer driving season. Refiners have cut back on runs as tepid demand hits profits.

"Refiners are trying to protect their margins by whacking down the utilization rates, but although these were down by 2 percent, we still saw a build in distillates and gasoline," said Gene McGillian, analyst for Tradition Energy in Stamford, Connecticut.

U.S. crude oil stocks fell by 1.8 million barrels, below analyst expectations for a 2.1 million barrel draw and a Tuesday report by the American Petroleum Institute which showed a 3.1 million barrel build.

U.S. crude settled 21 cents lower at $65.40 a barrel in choppy trade that sent prices down to $63.76 earlier. Brent crude rose 34 cents to settle at $67.21 a barrel.

The drop in U.S. oil came despite data showing implied oil demand for No. 2 world consumer China rose for a third consecutive month in June as underlying economic activity picked up.

Flagging global demand knocked crude off record highs near $150 a barrel last July to below $33 in December. The steep drop prompted the Organization of the Petroleum Exporting Countries to agree to a series of output cuts last year.

Optimism that a turnaround in the economy could bolster fuel demand have help lift crude prices in recent months, and Kuwait's oil minister said on Wednesday a price near $65 a barrel is reasonable and good for the OPEC nation.

Investors have pushed money into oil and equities markets on recovery hopes frequently this year. U.S. stock markets traded slipped on Wednesday afternoon.

(Reporting by Matthew Robinson and Robert Gibbons in New York; Alex Lawler and Christopher Johnson in London; Editing by David Gregorio)