Brent futures held above US$109 a barrel on Wednesday, drawing support from data showing a steep fall in crude stockpiles at the delivery point for the US benchmark, while weak US economic indicators overnight kept any gains in check.
Investors are assessing the demand outlook for oil when the severe chill over the United States and Europe eases and as refiners take plants down for maintenance after meeting peak winter consumption, weighing on crude demand.
But prices, particularly of the European benchmark, may draw support from prolonged unrest in North African exporter Libya.
Brent crude had slipped 9 cents to US$109.42 a barrel by 0725 GMT, extending losses after settling US$1.13 lower. US oil fell 11 cents to US$101.72, after ending 99 cents down.
""The stocks decrease in Cushing is supporting oil, but we can see some profit-taking coming in because of the recent gains in prices," said Ken Hasegawa, commodity sales manager at Newedge Japan. "Brent is essentially tracking the US benchmark because there are no drivers at the moment. People are looking at Libya."
The price difference between Brent and WTI may hold around US$7-US$8 a barrel, Hasegawa said. The US benchmark looks set to face some downward pressure as the surge in heating oil demand eases, with prices facing strong support at US$100 a barrel.
Brent may swing between US$107 and US$112 a barrel in the absence of any key triggers, Hasegawa added.
More than 100 rockets fired in clashes between rival government-paid militia have knocked out a power plant in southern Libya, in yet another indication of the struggle the government is facing in controlling the unrest.
US crude stockpiles at the Cushing, Oklahoma, delivery hub fell by 1.1 million barrels, data from industry group the American Petroleum Institute (API) showed, even though overall inventories rose 822,000 barrels.
The gain in the overall stockpiles was lower than analyst expectations for an increase of 1.2 million barrels.
Gasoline stocks fell by 314,000 barrels, compared with expectations in a Reuters poll for a 1-million-barrel decline. Distillate fuels stockpiles, which include diesel and heating oil, fell 693,000 barrels, compared with expectations for a 1.2 million-barrel drop, the API data showed.
Investors are now waiting for data from the U.S. Department of Energy's Energy Information Administration (EIA) to get a clearer picture on the country's oil stockpile.
"Benchmark crude prices were muted during Asian trading today, as markets become skeptical about US recovery over weak economic releases," analysts at Phillip Futures said in a note. "Investors also squared their positions ahead of the EIA's weekly releases for more directions."
US home price gains slowed in December, underscoring a loss of momentum in the housing recovery, while consumer confidence drifted lower this month. But the weakness in the housing sector may have been in part due to the bitter cold and severe snowstorms.
"Some US data is good and some is bad," Hasegawa said. "But the overall outlook for the U.S. economy is improving and there seems to be a recovery, which is good for oil."
Oil markets are also watching China's demand outlook. The world's second-biggest oil consumer's corporate debt has hit record levels and is likely to accelerate a wave of domestic restructuring and trigger more defaults as credit repayment problems rise.-- Reuters
