Crude Oil Gains Erased On US Inventory Build Up

Brent crude oil prices turned flat on Wednesday, as a build-up in U.S. crude inventories erased earlier support provided by hopes of a breakthrough deal to bail out Greece and ongoing tension between Iran and the West.

Gains were capped by an increase in weekly U.S. crude stockpiles, which were up less than expected, but ran counter to the large drop reported by industry body American Petropleum Institute (API) on Tuesday.
London Brent crude

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[LCOCV1  Loading...      ()   ] was 3 cents lower at $116.20 a barrel, after touching intra-day highs of $116.97 a barrel earlier in the sesion.
U.S. light, sweet crude

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[CLCV1  Loading...      ()   ] rose by 6 to $98.47 a barrel, buoyed by an unplanned outage at a Canadian oil sands plant.

Data from the U.S. Energy Information Administration showed oil inventories rose by 304,000 barrels, below analysts' average forecast for a 2.4 million barrel rise.

"A smaller than many expected build in crude oil stocks has initially drawn prices slightly lower against a backdrop of continued and increasing unrest in the Middle East," said Jay Levine, broker at Enerjay LLC in Portland, Maine.

Brent's premium to U.S. crude oil narrowed to around $17.70 a barrel, after the spread had widened to more than $20 per barrel on Tuesday, its highest since October.

Oil prices found support earlier in the session on optimism about Greece, as negotiations to stave off a bankruptcy advanced after several delays.

"There has been continued economic recovery and what seems to be a soft landing in China, and concerns on Iran and Syria, and the cold weather helps too but if there is no fresh news we could retreat towards $113 a barrel," said Christopher Bellew, broker at Jefferies Bache.

Strong economic data from China and the United States has provided the backdrop to an 8.5 percent rise in Brent crude since the start of the year, but some market participants thought the rally was running out of legs.

Deman Data In Focus

The U.S. government's Energy Information Administration (EIA) boosted its 2012 and 2013 forecasts for global oil demand growth, and said supply would tighten as gains in non-OPEC output lag, adding to support for oil prices.

Investors await forecasts from the Organization of the Petroleum Exporting Countries on Thursday and the International Energy Agency (IEA) data from Europe on Friday

"The IEA report relates energy growth to IMF growth forecasts, which were reduced last month, so that may act as a cap on prices," said Andy Sommer, analyst at EGL in Dietikon, Switzerland.

Sommer added that slightly milder weather was forecast in Europe and said it was unlikely Brent crude would go much above $120 in the near future. An ongoing cold snap is expected to have dented inventories in the region, with some power providers starting up oil-fired power stations to meet consumer demand.