Oil prices drop as coordinated reserve release eases some supply fears

* API shows crude, gasoline stocks rise; distillates down -sources

* US to release 50 mln barrels of oil from strategic reserves

* Japan to release 4.2 mln barrels from reserves -Nikkei

* But Goldman says global reserves release 'a drop in the ocean'

Oil prices fell on Wednesday as the US-led coordinated release of stocks from strategic reserves eased concerns over tightness in global supply, while investors took profits from the previous day's rally ahead of the US Thanksgiving holiday.

US West Texas Intermediate (WTI) crude futures fell 12 cents, or 0.2%, to $78.38 a barrel at 0122 GMT, reversing out of a 2.3% gain in the previous day.

Brent crude futures slid 32 cents, or 0.4%, to $81.99 a barrel, having risen 3.3% on Tuesday.

"The coordinated efforts by oil consuming countries to lower crude prices prompted fresh selling," said Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd.

"Behind the decline is also profit-taking ahead of the US holiday," he said, adding concerns over slower demand in Europe amid a resurgence in the Covid-19 pandemic also weighed on sentiment.

The United States said on Tuesday it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude.

Japan will hold auctions for about 4.2 million barrels of oil out of its national stockpile, the Nikkei newspaper reported on Wednesday.

Adding to pressure, US crude and gasoline stocks rose last week while distillate inventories fell, according to market sources citing American Petroleum Institute figures on Tuesday.

Crude stocks rose by 2.3 million barrels for the week ended Nov. 19, against an analyst expectation of a decline by about 500,000 barrels. Gasoline inventories rose by about 600,000 barrels and distillate stocks fell by 1.5 million barrels, the data showed.

Still, some analysts said the effect on prices of the coordinated release was likely to be short-lived after years of declining investment and a strong global recovery from the Covid-19 pandemic.

The coordinated release may add about 70 million to 80 million barrels of crude supply, smaller than the more-than-100 million barrels the market has been pricing in, analysts at Goldman Sachs said.

"The threat of more supply in the short term certainly creates an artificially looser oil market for the next 1-2 month period," Louise Dickson, senior oil markets analyst at Rystad Energy, said in a report.

"However, the move by (US President) Biden and other leaders may just be pushing the supply issue down the timeline, as emptying out storage will put even further strain on already low oil stockpiles," he added.