Oil was lower for a third straight day on Wednesday after a larger-than-expected increase in crude oil inventories last week, at a time when refinery activity slowed sharply, indicated weaker demand in the world's largest oil consumer. Prices were higher earlier on news that the European Central Bank (ECB) had allocated more than $500 billion for low-interest loans.
Worries that global oil markets might be short of fuel as the United States and Europe impose sanctions on Iran limited the day's losses. US crude inventories leaped 4.16 million barrels in the week to February 24, up for a second straight week, the US Energy Information Administration said, dwarfing analysts' forecast in a Reuters poll for a 1.1 million barrel rise.
At the Cushing, Oklahoma, delivery hub for US-traded oil futures, crude stockpiles rose 1.65 million barrels to 33.81 million barrels, the highest since August. Crude imports edged up 96,000 barrels per day to 9.15 million bpd. US crude oil for April delivery was down 78 cents at $105.77 a barrel by 1:25 pm EST (1825 GMT), after earlier falling to a session low of $104.84. Losses have extended from Friday's intraday high of $109.95, the highest since May.
In London, ICE April Brent, was down 16 cents at $121.39, after falling to a session low of $120.50. Brent crude has fallen since Friday's high of $125.55, also the highest since May. Brent's premium against US crude widened to around $15.65, after closing at $15 on Tuesday. So far, trading volume for US crude was light, about 32 percent below its 30-day average, according to Reuters data. Brent crude volume was up 7 percent from its 30-day average.
"Demand remains weak year-over-year given the warm weather dragging on heating oil demand and high gasoline prices which some consumers have adjusted to," said Chris Jarvis, president at Caprock Risk Management, Rye, New Hampshire. "Macroeconomic data and geopolitical tensions will remain the key drivers of energy prices for the foreseeable future."
Brent is up more than 10 percent this month and on track to post its strongest monthly gain since last February. US crude has risen more than 6 percent this month, rebounding from losses in two previous months. Oil investors ignored US economic data, which showed that the economy grew a bit faster than initially thought in the fourth quarter last year and manufacturing activity in the US Midwest rose to a 10-month high this month.
Market bulls' sentiment appeared to have been tempered by comments from US Federal Reserve Chairman Bernanke, who told US lawmakers that "the job market is far from normal" and that "continued improvement ... is likely to require stronger growth in final demand and production." Also bearish for the market was news that output from the Organisation of Petroleum Exporting Countries (Opec) rose this month to the highest since October 2008 due to a further recovery in Libya's production and higher supplies from Angola and Saudi Arabia, a Reuters survey found.
Concerns that sanctions imposed by the US and a slated ban on Iranian oil by the European Union that becomes effect in July would disrupt supply and harm the global economy have led US Energy Secretary Steven Chu and Treasury Secretary Timothy Geithner to say that the United States was considering a release of crude from the Strategic Petroleum Reserve (SPR).
But on Wednesday, Executive Director Maria van der Hoeven of the Paris-based International Energy Agency said there have been no discussions within the IEA about the release of strategic reserves. So far, the tightening sanctions against Iran has led the Islamic Republic to say on Tuesday it will take payment from its trading partners in gold instead of dollars