Oil dips on higher US fuel supplies, but overall market remains supported

Oil prices fell on Wednesday, weighed by data showing an increase in U.S. crude oil and gasoline inventories.

Brent crude futures were at $69.79 a barrel at 0749 GMT, down 17 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $64.45 a barrel, down 2 cents from their last settlement.

Prices were pressured by U.S. data showing an increase in crude and gasoline stocks.

The American Petroleum Institute said on Tuesday crude inventories rose by 4.8 million barrels in the week to Jan. 19 to 416.2 million, after nine weeks of drawdowns.

Gasoline stocks climbed by 4.1 million barrels, while refinery crude runs fell by 420,000 barrels per day.

In Asia, oversupply of gasoline has pulled down refinery profits their lowest level since 2015.

Amid these indicators, traders are taking measures to protect themselves from a potential fall in crude prices.

Trading data shows open interest for Brent put options to sell at $70, $69 and $68 per barrel has surged since the middle of last week on the Intercontinental Exchange (ICE).

"The options market shows increased demand for downside protection. This makes sense considering how one-sided (to the upside) the speculative bets have become," said Ole Hansen, head of commodity strategy at Saxo Bank.

There is now far more demand for options to sell Brent than there is for call options, which are the right to buy Brent at a certain price.

Sukrit Vijayakar energy consultancy Trifecta said the rising options to sell were a result of huge amounts of long positions that have been built up over the past months of rising prices.

"We still have...nine long barrels for every short barrel, so a reversal should be interesting to watch," he said.

STILL STRONG SUPPORT

Despite this, traders said oil would unlikely tumble far as markets remain supported by strong economic growth and by supply restrictions led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

Russian Energy Minister Alexander Novak said on Wednesday that an average Brent price of around $60 was a reasonable forecast for this year, Interfax news agency reported.

In the latest sign of healthy economic growth, Japanese manufacturing activity expanded at the fastest pace in almost four years in January, a survey showed on Wednesday.

Economic growth is translating into oil demand growth and comes at a time that OPEC and Russia lead production cuts aimed at tightening the market. The deal to withhold output started in January last year and is currently set to last through 2018.

Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore said a "beaming economic forecast along with stout compliance from OPEC (to withhold production) is providing convincing support."

(Reporting by Henning Gloystein; Editing by Joseph Radford)