Oil prices fell more than 1 percent on Thursday as data showed a smaller-than-expected drop in U.S. crude inventories and worries about the global economic outlook weighed on the market.
Surging oil transport costs and insurance rates in the Middle East also damped the outlook for demand in the region.
NYMEX crude oil futures fell 1.08 percent to $56.72 a barrel at 15:50 Beijing time, according to huitong financial software.
ICE brent crude fell 1.08 percent to $63.13 a barrel.
Data from the U.S. energy information administration on Wednesday showed U.S. crude oil inventories fell by 1.085 million barrels last week, compared with analysts' expectations for a decline of 2.79 million barrels.
That suggests U.S. oil demand may slow.
"The us oil market is still oversupplied," said EdwardMoya, analyst at OANDA*.
In addition, the economy showed signs of slowing, adding to oil market doubts.
U.S. economic data on Wednesday showed new factory orders fell for the second straight month in May.
In June, the ISM non-manufacturing PMI hit its lowest level since July 2017.
OPEC and other producers, including Russia, agreed Tuesday to extend production cuts through March 2020, further reducing global supplies.
Rising transport costs in the Middle East are dampening demand in Asia
Asian refiners' profits are being squeezed by higher transport costs and insurance rates after previous attacks on oil tankers in the Persian gulf, according to industry insiders and analysts.
More than two-thirds of Asia's oil demand comes from the Middle East.
Market participants say war insurance rates for tankers traveling through the Persian gulf have risen nearly tenfold.
Rates for very large carriers from gulf oil ports to Asian ports have risen by about 30 percent.
"The war risk rates for very large tankers, which used to be almost negligible compared to freight rates, were somewhere in the range of $15,000 to $20,000 (about 4 parts per 10,000). Now they have gone up to $150,000 to $200,000," an oil company official said.
The Japan petroleum association said late last month that insurance rates had risen from 2.5 per 10,000 to 2.5 per 1,000.
It says the newer the ship, the higher the premium rate.
Since June 12, the cost of transporting supertankers from a Saudi port to ningbo, China, has surged 27 per cent to $1.24 a barrel, according to data.
Using the same type of vessel, freight rates from the united Arab emirates to Visakhapatnam port in India jumped 37 percent, while those from Kuwait to Singapore jumped 24 percent.
GeorgiS, head of research at UK stockbroker MarexSpectron.
"In the short term, freight rates are unlikely to rise further because of weak capacity demand," Slavov said.
Still, the industry remains cautious about the outlook for the Middle East.
"If the current situation continues for a long time or even worsens, * it will eventually affect overall operating costs," said PAJ President TakashiTsukioka.
"We cannot completely cut back on imports from the Middle East because it is difficult to find alternative suppliers for some heavy oils," said an official at a south Korean refinery.
U.S. crude could fall to $55.95
Us crude starts down (3) wave trend from $57.57, with lower support at $56.57 and $55.95, which are the target of (3) wave at 23.6% and 38.2% respectively.
A renewed rally above $57.57 would likely extend the rally from $56.05, with the upper resistance looking at $58.16, or the 50% Fibonacci retracement of the wave.