During early Asian trading, oil prices fell, as traders considered rising inventories and diminishing demand.

Brent crude futures dropped 53 cents, or 0.5%, to $96.87 per barrel by 0005 GMT, as U.S. West Texas Intermediate crude futures dropped 61 cents, or 0.7%, to $91.32.

One factor prompting the drop was new data out of the US Energy Information Administration showing US crude oil stocks rose 5.5 million barrels in the most recent week, which was more than the expected 73,000 barrels.

Gasoline demand was down 6% over the last four weeks, as gasoline production increased, to 10.2 million barrels daily last week, versus 9.3 million barrels daily a week ago.

Refineries continue to operate at high rates, with the average refinery at 94.3 percent of capacity last week. An average of 16.6 million barrels of crude is being refined daily now, compared to 15.9 million bpd for the previous week. Capacity utilization is at 91 percent.

Meanwhile, Russian state oil pipeline monopoly Transneft (TRNF_p.MM) reported it has restarted flows on the southern leg of the Druzhba pipeline, after seeing flows stopped when a transit fee payment was rejected by Ukraine due to sanctions rules preventing its acceptance without an official governing body approving it. Transneft had applied to have its payments approved and received acceptance, the payment was made and flows resumed.

Meanwhile, there are signs indicating that U.S. manufacturing activity may be set to decline in the second half of the year according to a Reuters market analyst. Combined with other indications of economic slowdown, traders are beginning to assume an economic contraction will diminish demand in the second half of the year.