Brent Pulls Back as Euro Zone Fears Resurface
Oil slowly crept towards $110 a barrel in choppy trading on Wednesday, pressured by rising crude stockpiles in top consumer the United States and festering worries over the euro zone.
Worries over the debt crisis in Cyprus pushed the euro lower, eroding the attractiveness of commodities priced in the U.S. currency. Positive U.S. economic data lifted the dollar and gave earlier support to North Sea Brent crude.
"The externals have been a negative for oil prices with the euro falling to its lowest level since mid-November of 2012," said Dominick Chirichella of Energy Management Institute.
"The market is still uneasy about the type of deal that was done for Cyprus."
Closely-watched weekly inventory figures from the U.S. Energy Information Administration (EIA) showed that crude stocks rose more than forecast last week. But gasoline and distillates fell more than expected even as refinery runs increase.
"Today's build in crude was bigger than most had expected, but was offset by a greater-than-expected draw in distillate stocks with the gasoline number a non-event," said Jay Levine of Enerjay LLC.
Despite the bearish mood on U.S. oil supply, upbeat data in recent months has boosted confidence in the recovery of the world's top economy.
Orders for U.S.-made durable goods surged last month and home prices posted their biggest year-on-year gain in six and a half years in January, suggesting that the U.S. economy regained momentum early in the first quarter.
Reflecting investor sentiment on the economies of the two regions, Brent's premium to U.S. crude remained above $12 a barrel, after narrowing to as little as $12.52 in the previous session, the smallest in eight months.
The spread has narrowed sharply from $23.45 in February. The improving U.S. economy and increased pipeline flows from the Midwest have supported the U.S. benchmark oil contract.
Meanwhile, Brent has been pressured by increased supplies from the North Sea, while the strict conditions on a rescue plan for Cyprus underlined concerns about Europe's financial stability.
The upbeat outlook for the United States was tarnished somewhat by other data on Tuesday showing a sharp drop in consumer confidence as Americans worried about the impact of tighter fiscal policy, particularly $85 billion in government budget cuts known as the "sequester".
Elsewhere, data from industry group the American Petroleum Institute late on Tuesday showed U.S. crude oil stocks rose 3.7 million barrels last week, much higher than forecast in a Reuters survey of analysts. Inventories of gasoline and diesel both fell more than expected.
The more closely-watched government data from the U.S. Energy Information Administration (EIA) is set for release at 10:30 a.m. EDT on Wednesday.