U.S. crude, gasoline inventories rise unexpectedly as Brent-WTI spread nears widest margin in three years.
Oil prices recorded their largest one-day drop in two weeks on Thursday, with expectations building that OPEC will end an output deal that has been in place since the start of 2017 due to concerns about supplies from Venezuela and Iran.
Benchmark Brent futures were down $1.08 at $79.72 a barrel by 1118 GMT, its largest one-day fall since May 8, while U.S. crude futures dropped 86 cents to $70.98 a barrel.
"This discussion about possible OPEC supply increases after the June meeting has put a brake on the oil price for the time being, so $80 is a big hurdle to overcome," Commerzbank strategist Carsten Fritsch said
"If prices get above there, that will further intensify and increase the likelihood that OPEC will do something .. It's going to be very difficult to overcome this level on a sustainable basis before the OPEC meeting."
The Organization of Petroleum Exporting Countries may decide in June to lift output to make up for reduced supply from Iran and Venezuela and in response to concerns from Washington about a rally in oil prices, OPEC and oil industry sources told Reuters.
Venezuela's output has fallen amid an economic crisis, while Iran's supply is threatened by U.S. sanctions.
These factors have helped push Brent and WTI to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.
"The chat is still that OPEC will do something at its June meeting in reaction to the looming prospect of a fall in crude production and exports from both Iran and Venezuela as the year progresses," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader
OPEC and some non-OPEC major oil producers, which are scheduled to meet in Vienna on June 22, previously agreed to curb their combined output by about 1.8 million barrels per day (bpd) to boost oil prices and clear a supply glut.
Global inventories have been broadly falling. But commercial U.S. crude inventories rose <C-STK-T-EIA> by 5.8 million barrels in the week to May 18, beating analyst expectations for a drop of 1.6 million barrels, the Energy Information Administration (EIA) said on Wednesday.
The premium of Brent crude over U.S. West Texas Intermediate futures neared $8 a barrel, close to its widest in three years. <CL-LCO1=R>
Inventories of gasoline rose by 1.9 million barrels in the same week, just ahead of the Memorial Day holiday in the United States which typically marks the start of the summer driving season.
Refinery runs fell 7,000 bpd to 16.63 million bpd, 3.8 percent below the same week last year, according to the EIA data.
By Amanda Cooper