By Christopher Alessi and Dan Molinski 

U.S. oil prices fell to their lowest in nearly a month Tuesday, as selling continued after Monday's sharp drop on expectations global producers will bring additional crude oil to market to make up for recent deficits.

Light, sweet crude for August delivery declined 0.9% to $67.46 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, was flat to $71.88 a barrel.

"Reports that the U.S. is mulling an SPR [strategic petroleum reserve] release and a softer stance on Iranian exports, along with comments from other large producers reassuring markets that they would continue to balance the market, helped fuel the perception that more oil is re-entering the market," said JBC Energy, which added this notion "is finding solid justification in terms of crude movements."

Still, traders seem reluctant to take the selloff too far given upcoming weekly U.S. inventory data is expected to show another, bullish decline. Last week's official report showed a 13-million-barrel drop to 405 million barrels, the lowest total since February 2015.

The American Petroleum Institute, an industry group, releases its report at 4:30 p.m. ET, followed by the U.S. government's report Wednesday morning.

"The market is trading nervous after taking a pummeling in yesterday's action," said Dan Flynn at Price Futures in Chicago. "The market is in chop mode for the moment and we are expecting another large draw in Crude Oil and Product Stocks."

Tuesday's moves came after oil prices fell more than 4% for the second time in the last four sessions on Monday.

Oil market observers are increasingly focused on the possibility the U.S. could open up its strategic reserves in the wake of comments by President Donald Trump late last week.

"The main reason for yesterday's significant price drop was the talk about SPR release that is getting louder," according to Tamas Varga, analyst at brokerage PVM Oil Associates Ltd. "The U.S. SPR is currently some 270 million barrels above the required level of 90 days of the previous year's net imports -- there is room to act if deemed necessary, " he added.

Prices have also come under pressure amid signs that Saudi Arabia -- the world's largest exporter of crude -- is ramping up output even more than agreed in conjunction with the Organization of the Petroleum Exporting Countries last month.

OPEC, of which Saudi Arabia is the de facto head, and 10 producers outside the cartel, including Russia, agreed in late June to begin increasing crude production by up to 1 million barrels a day starting this month after more than year of holding back output. The decision came amid supply outages in Venezuela and geopolitical risk to supply in Iran as a result of impending U.S. economic sanctions.

If the Saudis move unilaterally to sell more oil, "others [in OPEC] could be inclined to pump more, leading to a bigger supply response than agreed at the petro-nations' meeting at the end of June," said Carsten Menke, head of commodity research at Julius Baer.

At the same time, the U.S. Energy Information Administration said Monday that it expects U.S. shale oil output to increase by 143 million barrels a day month-on-month, to reach 7.47 million barrels a day in August.

Among refined products, gasoline futures rose 0.3% to $2.0071 a gallon. Diesel futures gained 0.3% to $2.0606 a gallon.

Write to Christopher Alessi at christopher.alessi@wsj.com and Dan Molinski at Dan.Molinski@wsj.com

(END) Dow Jones Newswires

July 17, 2018 10:52 ET (14:52 GMT)

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