The oil markets' seven-day rally faltered on Wednesday ahead of weekly U.S. inventory data and as investors grew more cautious ahead of the $70 a barrel mark.

U.S. light, sweet crude was down 86 cents at $67.69 a barrel by 1132 GMT, off an earlier peak of $68.72. ICE Brent crude was down 70 cents at $67.47 a barrel.

U.S. President Barack Obama kicks off a tour of the Middle East and Europe on Wednesday in Saudi Arabia, where he said he would raise the issue of price volatility with King Abdullah and indicate no halt to the need for oil imports.

The Saudis want to be assured that there will be a future for oil consumption. They want security of demand, said Simon Wardell, senior oil analyst at Global Insight in London.

Obama for his part will be persuading them to continue investing in new production, which is not likely to have too much impact on spot prices in the near term, but will come five or ten years down the road, Wardell said.

$70 BARRELS

U.S. front month crude prices broke above an important 200-day moving average price level last Tuesday, and had closed higher every day since until the last session, when the market finished down 3 cents.

The strong influence has been the breakout of the 200-day moving average last week, which has brought the market higher ever since, said Olivier Jakob, an oil analyst at Swiss-based PetroMatrix.

We are very close to this psychological $70 level, and the bulls can afford a slight retracement and still keep their bullish trend, said Jakob.

Investors have held back so far on Wednesday, with oil markets showing light trading volumes, as they await data from the U.S. Energy Information Administration due at 1430 GMT.

The American Petroleum Institute on Tuesday said crude stocks fell 828,000 barrels last week, a smaller decline than 1.4 million barrels expected in a Reuters poll.

The API numbers suggest we could see similarly subdued readings out of the EIA and potentially weaker prices heading into the Wednesday session, Edward Weir at MF Global in London wrote in a note.

Gasoline supplies rose 99,000 barrels and distillate stocks jumped 3.4 million barrels, the API said, against expectations for a 400,000 barrel build in gasoline and a 1 million barrel rise in distillate stocks.

U.S. gasoline demand during the Memorial Day week, which ended on May 29, rose 2.2 percent from a year earlier to 9 million barrels, a MasterCard SpendingPulse report showed on Tuesday.

(Additional reporting by Sambit Mohanty in Singapore, editing by Keiron Henderson)

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