Oil falls on rising supply and concern about trade tensions

By Stephanie Kelly

NEW YORK (Reuters) - Oil prices fell on Wednesday as a surprise increase in U.S. crude stockpiles fed concerns about global oversupply, while investors continued to worry that trade tensions could hit energy demand.

Brent crude futures fell $1.53 to $72.68 a barrel, a 2.1 percent loss, by 12:42 p.m. EDT.(1642 GMT).

U.S. West Texas Intermediate (WTI) crude futures fell 97 cents to $67.79 a barrel, a 1.4 percent loss.

U.S. crude inventories rose 3.8 million barrels in the week to July 27 as imports jumped, the government's Energy Information Administration said. Analysts polled by Reuters had expected a decrease of 2.8 million barrels.

Still, oil futures pared losses briefly after the data, which also showed growing U.S. demand.

"It was surprising to see the build in crude, but it was a little bit offset by the bigger-than-expected draw in gasoline and the draw in Cushing," said Tariq Zahir, managing member at Tyche Capital Advisors in New York.

Gasoline stocks declined 2.5 million barrels, while crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.3 million barrels, EIA data showed.

On Tuesday, EIA reported that U.S. crude production fell 30,000 bpd to 10.44 million bpd in May.

Oil prices are also being pressured by concern that global trade tensions could crimp economic growth.

China said on Wednesday that "blackmail" wouldn't work and that it would hit back if the United States takes further steps hindering trade, as the Trump administration considers slapping a 25 percent tariff on $200 billion worth of Chinese goods.

Last month, Brent fell more than 6 percent and U.S. crude slumped about 7 percent, the biggest monthly declines for both benchmarks since July 2016.

On Wednesday, a Kuwaiti official said the country increased production in July by 100,000 bpd from June's average.

On Monday, a Reuters survey found that OPEC production reached a 2018 high in July. The Organization of the Petroleum Exporting Countries, plus Russia and other allies, decided in June to ease supply cuts in place since 2017.

Oil prices also were pressured by signs that a supply disruption in the Bab al-Mandeb Strait in the Red Sea could be resolved.

On Tuesday, Yemen's Houthi group said it was unilaterally halting attacks in the Red Sea for two weeks to support peace efforts. Saudi Arabia had suspended oil shipments through the strait last week after attacks on tankers.

(Reporting by Stephanie Kelly in New York, Alex Lawler in London, Aaron Sheldrick in Tokyo and Henning Gloystein in Singapore; Editing by David Gregorio and Louise Heavens)