Oil backs away from $70 a barrel ahead of U.S. inventories

By Amanda Cooper

LONDON (Reuters) - Oil fell on Wednesday as investors took profit on a rally the day before to this year's highs after a report showed a surprisingly large increase in U.S. crude inventories.

June Brent crude futures were last down 53 cents on the day at $68.93 barrel by 1330 GMT, while the May contract, which expires on Thursday, was down 45 cents at $69.66. WTI futures fell 67 cents to $64.58 a barrel.

Traders said most pressure ensued after the American Petroleum Institute (API) on Tuesday reported a surprise 5.3 million barrels rise in crude stocks in the week to March 23, against expectations for a decline of to 430.6 million barrels.

The oil price has risen in seven out of the last 9 months and has increased by more than 4 percent this year, making this the third consecutive quarter of gains, which is the longest stretch since late 2010.

"After it rebounded from its early-week high, profit-taking is likely to have ensued," Commerzbank's Carsten Fritsch said in a note.

"This was exacerbated by an appreciating U.S. dollar and an unexpected 5.3 million barrel rise in US crude oil stocks last week, as reported by the API after close of trading yesterday."

Official U.S. inventory data will be published by the Energy Information Administration (EIA) late on Wednesday.

"The final part of the surplus has been removed by the lack of any significant seasonal inventory build so far in 2018," Standard Chartered head of commodity strategy Paul Horsnell said.

"There is normally a build in U.S. crude oil inventories from the start of the year through to the end of April, which normally amounts to about 60 million barrels ... commercial crude oil inventories have risen by less than 4 million barrels (this year)," he said.

U.S. oil production has risen by nearly 25 percent in the last two years to over 10 million barrels per day,, taking it past top exporter Saudi Arabia and within reach of the biggest producer, Russia, which pumps around 11 million bpd.

Wednesday's price falls came despite Saudi Arabia saying it was working with Russia on a historic long-term pact that could extend controls over world crude supplies by major exporters for many years.

Saudi Crown Prince Mohammed bin Salman told Reuters that Riyadh and Moscow were considering greatly extending a short-term alliance on oil curbs that began in January 2017 after a crash in crude prices, with a partnership to manage supplies potentially growing "to a 10-to-20-year agreement."

(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Matthew Mpoke Bigg and Louise Heavens)