U.S. crude oil futures lost substantial ground on Wednesday after industry data from the American Petroleum Institute showed an unexpectedly large increase in crude inventories last week. Crude lost over 3 percent on NYMEX and MCX. Natural gas also settled lower and continued to show weakness against the backdrop of mild weather conditions and demand concerns.

IN FOCUS:

Japan's crude oil imports dropped for the ninth straight month in July but the rate of decline slowed from June's steep fall, suggesting energy demand could be starting to stabilise as the economy emerges from recession.

The API said that for the week to Aug. 21, domestic crude stocks shot up 4.3 million barrels to 346.7 million barrels as imports rose sharply.

Commercial crude stocks rose 4.3 million barrels in the week ending Aug. 21 as imports sped up by 475,000 barrels per day and refinery runs slowed by 146,000 bpd, according to the report from the industry association.

The U.S. Energy Information Administration, the statistical arm of the Department of Energy, will release its own report on petroleum inventories today evening.

FUNDAMENTAL OUTLOOK:

We do not see a major upside in crude oil prices during the day. Though it may move slightly up following the surge in equities, the fundamentals from the demand point of view still remain weak. One should be cautious in going long in crude oil.