Crude Loses EIA Bounce, Turns Lower as Stocks Sell Off

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Brent crude reversed course after poking above $104 on Wednesday, after data showing fuel stockpiles fell in the United States gave way to a broader sell-off engulfing the stock market.

Weekly data from the U.S. Energy Information Agency showed more than 6 million barrels were drained from crude stockpiles last week versus forecasts for a decline of 400,000 barrels.

Oil had already drawn support from weekly data provided by the American Petroleum Institute (API) that showed a surprise 7.8-million-barrel drop in crude stocks.

But crude gave up most of the day's gains as the Dow Jones Industrial Average tumbled in the wake of weak U.S. data, which stoked new fears about demand.

As stocks slid deep into the red, Brent crude reversed all the day's gains to trade below $103 a barrel. U.S. light, sweet crude gave up most of its gains to trade below $94 per barrel.

"We got a confirmation that API was not off the mark. The drawdown put a bid in the market again," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.

"The decline in inventories means that we've weathered the test of dropping below $92 (for U.S. crude) and now we're pushing it higher."

Supplies from OPEC producer Iran were meanwhile tightening, squeezed by Western sanctions.

Crude shipments dropped to 700,000 barrels per day (bpd) last month, about a third of Iran's exports before the current round of sanctions aimed at pressuring Tehran over its suspected pursuit of nuclear weapons.

In earlier trading, Brent was pushed higher after South Korea's sweetened incentives for non-Middle East crude oil imports heightened demand prospects.

The move by the world's fifth biggest oil importer to cut its reliance on Middle East suppliers and make imports of crude from other regions more attractive is expected to increase demand for crudes priced off Brent.

"It should also make it easier for South Korean refiners to test and import other light grades than just Forties from the Atlantic Basin (eg North and West African crude oils)," said Swiss-based energy analyst Olivier Jakob of Petromatrix.

Brent's premium to Middle East benchmark Dubai rose to the highest in more than two weeks following the development.

Investors are also watching the dollar, which hit session lows against the euro and yen after a report showed fewer private sector jobs were created in May than expected.