By Emma Farge and Fayen Wong
Jump in US crude & product stocks stir doubts that prices may have run ahead of demand fundas.
Oil prices fell towards $68 a barrel after dropping nearly 4 percent in the previous session as a surprise jump in US crude and product stocks stirred doubts that prices may have run ahead of demand fundamentals.
US crude for November delivery fell 55 cents to $68.42 a barrel by 1115 GMT and was on track to fall over five percent from the week's start.
London Brent crude fell 47 cents at $67.52 a barrel.
The U.S. Energy Information Administration's weekly data showed on Wednesday that commercial stockpiles of crude gained 2.8 million barrels against analyst expectations for a 1.5 million barrel fall.
Inventories of gasoline and distillate stocks also rose sharply, fuelling concerns that demand in the world's largest oil consumer is still fragile.
"A few factors were at play last night and the most notable was the US inventories number and that was unambiguously bearish," said Toby Hassall, a commodities analyst at CWA Pty Ltd in Sydney.
The dollar softened on Thursday after the Federal Reserve reiterated its promise to hold interest rates very low for a long time but this had no impact on oil prices.
Oil prices typically rise when the dollar falls as investors buy dollar-denominated commodities such as oil as a hedge.
Analysts said that investors were instead focused on oil demand fundamentals.
"The very, very surprising build in all major products and crude is still on the minds of most people and that has more of an impact than the dollar," said Andy Sommer an analyst with EGL in Switzerland.
But for now, technical analysts cited $68 a barrel on US crude as a key support level and this could prevent further losses.
Oil prices have been rangebound between $65-$75 a barrel since the start of August and many analysts feel some convincing evidence of a recovery is needed to justify a push back up towards the top of this range.
Investors are expected to keep a keen watch on key economic data such as U.S. weekly jobs data and August home sales due out later on Thursday for clues about the broader health of the US economy.