Brent crude settled higher on Thursday, barely snapping two consecutive days of losses as tensions in the Middle East receded, leaving rising global fuel supplies and faltering demand to weigh on prices.
U.S. crude oil inventories jumped to a record last week as domestic production continued to climb while oil imports fell, the U.S. Energy Information Administration (EIA) said on Wednesday.
After a choppy session, Brent crude futures settled up 13 cents at $104.47 per barrel. The benchmark has slipped from a one-month high of $105.94 touched on Tuesday after Israeli air strikes on Syria stoked supply fears.
(Read More: Key Levels to Watch for Crude Oil)
U.S. light, sweet crude ended down 23 cents at $96.39.
The number of Americans filing new claims for unemployment benefits dropped to the lowest in nearly 5-1/2 years last week, signaling labor market resilience in the face of fiscal austerity.
U.S. equity markets slipped on Thursday, coming off record highs, while the dollar rose against the yen and the euro.
Traders said the absence of support from geopolitical tension or bullish equity markets meant taking a closer look at weak supply-and-demand fundamentals.
"The problem was it was running up on nothing. There's nothing to support it," said Mark Waggoner, president at Excel Futures in Bend, Oregon.
"There's a tug of war here; the demand is not going to be there, but the economy is slowly improving. And you've got the Saudis, who are pumping more oil," he said.
Brent has slipped from a one-month high of $105.94 on Tuesday, when Israeli air strikes on Syria stoked supply fears.
Thursday's U.S. crude trading was inside Wednesday's range, indicating price consolidation. Brent dipped slightly below Wednesday's low but remained largely in a range of just over $1.
"There's too much crude oil production in the world, and when traders become worried about that, they end up selling," said Tim Evans, energy specialist at Citi Futures Perspective.
"Today we have an example of what the market looks like when the S&P is not setting new records," Evans said.
Expectations that further capacity utilization could suck more oil out of the U.S. Midwest storage hub over to U.S. refiners narrowed the spread between U.S. crude, also called West Texas Intermediate or WTI, and Brent to a low of $7.47, its narrowest since January 2011.
It later widened back to above $8 and has largely remained within a 50-cent range.
Heating oil and RBOB gasoline rose slightly, indicating traders may be exploiting the crack spread - the differential between crude oil prices and the products derived from "cracking" open crude by refining it, analysts said.
"Products up, while the crudes are down has the look of crack spread buying," said John Kilduff, partner at Again Capital LLC in New York.
World stock markets also cast a shadow over sentiment, falling back from record highs after China's annual consumer inflation rose more than expected in April while factory prices fell for a 14th consecutive month.