Oil futures edged lower Wednesday ahead of a closely watched report on U.S. oil inventories, expected to offer clues on the state of demand.
Light, sweet crude for October delivery fell 63 cents, or 0.7%, to $88.27 a barrel on the New York Mercantile Exchange. Brent crude on ICE Futures Europe rose 5 cents to $114.07 a barrel.
Market participants were hesitant to lay big trades ahead of the Department of Energy's weekly crude inventory survey, due at 10:30 a.m. EDT. Analysts are split over the size of last week's change in oil stockpiles, signaling uncertainty about the state of demand in the world's biggest oil-consuming country.
"Oil is reacting to the health of the economy," said Phil Flynn, analyst at PFG Best in Chicago. "When we hit the lows last week, we were in the depths of despair."
Analysts surveyed by Dow Jones Newswires predict oil inventories last week rose a modest 200,000 barrels. But the figure is an average and estimates vary widely.
Gasoline inventories, meanwhile, are seen falling 1 million barrels, while stockpiles of distillates are seen rising 700,000 barrels, according to analysts. Refineries are expected to have cut operations by 0.6 percentage point.
The American Petroleum Institute, an industry group, said its own survey released late Tuesday showed crude inventories last week soaring 5.1 million barrels, as refineries scaled back operations by 2.1 percentage points to 86.9% of capacity. The report, suggesting weakening demand, weighed on crude prices, but traders are awaiting the more closely watched DOE report for additional cues.
The health of the U.S. economy has taken center stage among oil market participants in recent months, amid intensifying concerns that the recovery has stalled. Analysts who issued rosy forecasts about the U.S. recovery earlier this year have had those forecasts dashed by reports of anemic growth and weak gasoline demand during the peak summer driving season.
Those concerns have been a key factor behind the pullback in crude prices in recent months, with Nymex crude off a high of nearly $115 a barrel reached in May. The price of Brent crude, the European benchmark, has also fallen, but the contract remains elevated due to uncertainties about Libyan supply and production problems in the North Sea, where the crude is sourced.
Earlier Wednesday, payroll giant Automatic Data Processing Inc. offered a tepid reading on U.S. hiring this month, saying private-sector jobs in the U.S. rose by 91,000. Economists expected an August gain of 100,000.
Traders will be closely following Friday's nonfarm payrolls report from the Bureau of Labor Statistics for confirmation of the reading.
"Despite the fact that the oil price advance that has been in place since the start of last week has carried further than we had anticipated, we are still viewing this rally as capable of being erased in short order by an event such as a bearish non-farm payrolls report," Jim Ritterbusch, head of the trade advisory firm Ritterbusch and Associates, said in a report.
Front-month September reformulated gasoline blendstock, or RBOB, recently traded up 1.82 cents, or 0.6%, to $3.0140 a gallon. September heating oil traded down 0.31 cent, or 0.1%, to $3.0661 a gallon. Both contracts are set to expire at the close of trading Wednesday.