Crude fell sharply on Wednesday, with U.S. oil ending the session barely above $105 as weak Chinese economic data renewed concerns over demand growth from the world's second-biggest oil consumer.
Still, drops in U.S. refined product and crude supplies helped contain losses.
Activity in China's manufacturing sector slowed to an 11-month low in July as new orders faltered, a preliminary survey showed Wednesday, pointing to slower economic growth.
A sub-index of the HSCB/Markit Purchasing Managers' Index, an indicator of Chinese employment based on company surveys, slid to 47.3 in July, the weakest since March 2009. It stood at 47.6 in June and for four months has been below the 50 mark that separates growth from contraction.
"It adds to the concern about the outlook for demand and brings into question just how strong Chinese commodities demand will be," said Alexandra Knight, economist at National Australia Bank.
Brent crude fell by more than a percent, to trade near $107 a barrel, while U.S. light, sweet crude, also known as West Texas intermediate, lost $1.84 to settle at $105.39 a barrel. Brent's premium over WTI was nearly $2, widening after hitting parity for the first time in almost three years on Friday.
Given strong U.S. demand for oil from the Cushing region, "the narrowing of the spread between WTI and Brent looks to continue, [as] the rush of crude oil out of the Midwest is unabated," said John Kilduff, partner at Again Capital.
(Read more: Relax! Oil will sell off soon: Pro)
Gasoline futures slipped from levels seen Tuesday, losing 0.25 percent, to about $3.05 a gallon.
Crude oil stocks
Oil briefly recovered some losses after the release of inventory figures from the Energy Information Administration, which showed crude oil stocks down slightly more than expected last week.
Stockpiles fell by 2.8 million barrels, to 364.2 million, against a forecast drop of 2.5 million barrels. Over the past four weeks, crude stocks were down nearly 30 million barrels, the biggest four-week decline on record.
Gasoline inventories decreased by 1.8 million barrels over the last week, remaining above the upper limit of the average range for this season. Distillate fuel stockpiles fell by 1.2 million barrels.
Still, the data showed fuel demand increases across the board. Distillate demand over the last four weeks climbed to 4.11 million barrels a day, 17.8 percent more than the year-earlier period. Gasoline demand over the same period reached 9.08 million barrels a ay, a 3.1 percent increase from last year.
"We did have increased fuel demand, which should be supportive across the board and should provide a boost for the market, but I'm not sure it's strong enough to get a real charge in the market," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn.
—Reuters contributed to this report