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Brent crude futures were down $1.02, or 1.28%, at $78.53 a
barrel by 1025 GMT. U.S. West Texas Intermediate crude futures
fell $1.04, or 1.38% to $74.49.
Prices lost more than 2% on Tuesday, having gained 7% over the
previous three days.
"Supply risks in Libya have come to the fore but market
participants seem sanguine ... demand in China remains weak and
the expected second-half rebound has yet to show credible signs
of commencing," Barclays analyst Amarpreet Singh said in a note.
While a decline in U.S. oil and fuel inventories last week
supported prices, the potential loss of Libyan oil output and
the possible expansion of the Israel-Gaza conflict to include
Iranian-backed militants from Hezbollah in Lebanon remain the
largest risks to oil markets.
Several oilfields across Libya have halted output as a dispute
continues between rival government factions over control of the
central bank and oil revenue. The dispute puts about 1.2 million
barrels per day (bpd) of production at risk.
There has still been no confirmation of any closures from the
Tripoli-based government or from the National Oil Corp (NOC),
which is in charge of oil resources.
The Libyan disruptions should tighten the oil market,
considering real barrels are removed, but here investors want to
see a drop in Libyan crude exports first, said UBS analyst
Giovanni Staunovo.
In the Middle East, fighting continued in the Gaza Strip between
Israel and Hamas militants, with no signs yet of a concrete
breakthrough in ceasefire talks in Cairo.
Over the weekend, Israel and Hezbollah bombarded each other with
rockets and missiles across the Lebanese border.
U.S. crude oil inventories fell by 3.407 million barrels in the
week ended Aug. 23, according to American Petroleum Institute
figures cited by market sources on Tuesday. Gasoline inventories
fell by 1.863 million barrels and distillates were down by 1.405
million barrels.
Weekly U.S. oil storage data is due from the U.S. Energy
Information Administration (EIA) later on Wednesday.
(Reporting by Arunima Kumar in Bengaluru, Sudarshan Varadhan in
Singapore and Georgina McCartney in HoustonEditing by David
Goodman)
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