Oil: Recovery loses steam, focus shifts to EIA report

A minor-recovery seen in both oil benchmarks during Asia lost steam in the early European trading, as investors turned cautious ahead of the highly influential EIA crude reserves report due to be published later in the NA session.

WTI stays below $ 40 mark

Currently, both crude benchmarks now pare gains and trade modestly flat, with Brent below $ 42 mark, while WTI heads towards 39.50 barrier. Oil prices stalled a brief Asian correction and now look vulnerable as the positive impact of the bullish API inventory report appears  to fade. The API report showed that oil stockpiles in the US dropped by 1.3 million barrels last week.

Moreover, oil remains exposed to further downside amid bearish forecasts published by many analysts. Analysts at Morgan Stanley noted, "Risks for oil remain skewed to the downside in 2H16. Supply disruptions and risk appetite were supportive Apr-Jun, but fundamental headwinds are growing, which outnumber any recent positives."

Focus now shifts towards the official government data published by the Energy Information Administration (EIA) that will be out later in the day, with markets predicting a fall of about 1.6 million barrels in crude stocks for the week to July 29.