Brent crude oil futures rose on Thursday on dollar declines, but gains were capped by a stall in the U.S. equity market as a jump in U.S. jobless claims stoked investor worry about an economic recovery.
Initial claims for state unemployment benefits jumped by a bigger than expected 32,000 in the latest week to a seasonally adjusted 360,000, the U.S. Labor Department said on Thursday, in the biggest rise since November.
"What's keeping a cap on here is the fact that the equity markets (S&P 500) stalled out at key levels of 1,665," said Brian LaRose, technical analyst with United-ICAP in Jersey City.
Brent crude oil would need to jump above $105.25 per barrel and U.S. crude oil above $96.65 in order for bullish momentum to take hold, LaRose said.
Brent crude oil was up 25 cents, trading below $104 a barrel after hitting an intraday high of $104.40, rising above the 40-day moving average on a continuation chart for the first time since May 8.
U.S. light, sweet crude rose by more than 10 cents above $95 per barrel.
The June Brent contract expires on Thursday, making it more susceptible to erratic moves as traders buy and sell contracts to settle positions.
Brent July crude was trading 71 cents higher at $104.21 per barrel.
The U.S. dollar dropped sharply against the euro on Thursday after the Philadelphia Federal Reserve Bank said its business activity index fell to minus 5.2 from 1.3 in April, against economists expectations for a gain.
A weaker U.S. dollar supports higher crude oil prices because it makes the commodity cheaper for holders of foreign currencies.
The dollar, measured against a basket of six currencies, was last trading less than one percent lower around 83.657.
The spread between U.S. benchmark West Texas Intermediate and European Brent widened beyond $10 per barrel for the first time since May 7, reflecting a costly rail transport bill for U.S. refiners.
"For the last two days, Brent has increased its premium to WTI, taking into consideration rail costs in the U.S." Olivier Jakob at consultancy Petromatrix said, "U.S. crude differentials had weakened, meaning that Brent-WTI was too narrow."
U.S. crude stockpiles declined by 624,000 barrels during the week to May 10, according to data on Wednesday from the Energy Information Administration (EIA). Analysts had forecast on average a 300,000 barrel crude build.
Investors did not take the drawdown as an indicator of a change in trend, however, because gasoline and distillate inventories jumped well above expectations.
"U.S. stocks are building, so demand is relatively weak, putting pressure on refining margins in Europe," Jakob at Petromatrix said.
Gasoline stockpiles on the East Coast rose by 1.8 million barrels in the week as the nation heads into the summer driving season, and were up nearly 10 million barrels from the same time last year.
But reports of a brief shut down on Colonial Pipeline sent U.S. gasoline futures above the 200-day moving average for the first time since early April, lending some support to U.S. crude oil.
Oil prices also drew some support from news that the United Nations' nuclear agency failed to persuade Iran to let it resume an investigation into suspected atomic bomb research, reviving worries about supply disruption.