Oil Dips Towards $105 as Supply Concerns Ease

Oil derrick with sunset
Harold Sund | Image Bank | Getty Images

Oil slipped towards $105 a barrel on Thursday after Egypt's army ousted its president, helping to ease concerns over the threat of supply disruption in the Middle East.

The Suez Canal, a vital waterway for oil shipments, was not affected by the recent unrest, but analysts said real and threatened supply disruptions in regions including the Middle East, which pumps a third of the world's oil, would support prices.

"It is too early to say that the situation has calmed down, but the safe operation of the Suez, which is in the interest of both Persian Gulf countries and oil-consuming nations, seems to be guaranteed," Tamas Varga, an analyst at oil brokers PVM, said.

(Read More: Where Now for Oil? It All Depends on Egypt)

Brent crude fell 42 cents to $105.34 a barrel by 1519 GMT, after rising to $106.03 on Wednesday, a two-week high. U.S. crude slipped 16 cents to $101.08, falling from a 14-month peak of $102.18 hit in the previous session.

Oil trimmed losses alongside a rally in European shares, following guidance from the European Central Bank and the Bank of England that any interest rate rises were a long way off. Both central banks kept rates unchanged.

Besides the perceived risks to Middle East supply due to tension in Egypt, disruption to exports in Libya and Iraq and relatively scarce supply of Russian crude into the Mediterranean have tightened physical oil flows.

"It is still too early to sound the all-clear," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt. "Supply risks are likely to lend continued support to oil prices."

The premium of Brent to U.S. crude was around $4.30 per barrel after falling to $3.09 on Wednesday, its narrowest since December 2010. Floor trading is closed in New York because of the Independence Day holiday.

In addition to concerns about Middle East supplies, the U.S. benchmark received a boost when a weekly inventory report showed stockpiles fell by more than 10 million barrels, the biggest drop for the time of year since 2000.

Traders are waiting for Friday's U.S. nonfarm payrolls report for affirmation economic recovery is on track. That could also provide an indication on when the Federal Reserve will start to scale back its bond-buying program.