Oil falls, snapping 3-day rally, after U.S. crude build

By Barani Krishnan

NEW YORK (Reuters) - Oil prices fell on Wednesday, cutting short a three-day rally, after a large U.S. crude inventory build offset bullish sentiment from earlier data suggesting supplies could tighten.

The U.S. government's Energy Information Administration (EIA) said crude inventories in the country rose by 3.1 million barrels last week, versus a 2.2 million-barrel build expected by analysts in a Reuters survey.

Just on Tuesday, the EIA projected in its monthly report that global oil demand for 2016 will grow by the fastest rate in six years, suggesting a crude surplus was easing more quickly than expected.

Brent, the global crude benchmark, was down 20 cents at $51.71 a barrel by 11:49 a.m. EDT (1549 GMT), paring gains of more than $1 at the session high.

The West Texas Intermediate (WTI) benchmark for U.S. crude slipped 45 cents to $48.08 a barrel, also having risen more than $1 earlier.

A rally between Friday and Tuesday had bumped up Brent and U.S. crude by about $4 each, as oil broke out of a month-long trading range on technical buying and supportive data.

The inventory build cited by the EIA on Wednesday, however, dampened the advance of market bulls, who had banked heavily on a stockpile draw after Tuesday's preliminary inventory data by the American Petroleum Institute suggested a drawdown of 1.2 million barrels. [API/S]

The crude build reported by the EIA "will take some of the wind out of the market's sails", said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

"The report is bearish enough to break the back of the rally, he said. It's cold water on the market."

Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in Laurel Hollow in New York, agreed.

"Overall, we have a real battle going on, with crude technically having broke out of the range we have been in for more than a month. $50 for WTI is in sight," Zahir said.

"But fundamentally we are seeing builds and that should continue we feel in the weeks to come," he said.

Zahir cited the impending arrival of Iranian oil as nuclear-related sanctions against Tehran come off, and an Atlantic hurricane season that has so far done no damage to U.S. oil installations.

But some say the overall trend was still higher.

"The key technical indicators are positive," said Robin Bieber, director of London brokerage PVM Oil Associates. "It is not advised to be short."

(Additional reporting by Christopher Johnson in London and Aaron Sheldrick in Tokyo; Editing by Louise Heavens, David Evans and Diane Craft)