Brent crude falls on rising inventories, strong dollar

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Brent crude fell on Wednesday on a larger-than-expected increase in U.S. crude inventories, a firming dollar, and a forecast from the International Energy Agency that oil demand will shrink.

Brent fell $1.13 a barrel to settle at $108.52, below its 200-day moving average of $109.37, a technical support level monitored by traders. U.S. crude futures fell 2 cents to settle at $92.52 a barrel.

Oil prices fell after U.S. crude stocks rose 2.62 million barrels last week, according to weekly U.S. Energy Information Administration (EIA) data. Analysts in a Reuters poll had expected a smaller rise of 2.3 million barrels.

Stocks of distillate fuels also posted a small, unexpected rise, while gasoline inventories fell more than expected, the EIA data showed.

The U.S. dollar rose 0.4 percent against a basket of foreign currencies. A stronger dollar index, which reached a seven-month high on Wednesday, can make oil more expensive for holders of other currencies.

"The dollar remains the big elephant in the room and with the euro (weakening), we expect further dollar strength, which will put pressure on energy prices," said Chris Jarvis at Caprock Risk Management in Boston.

TEPID DEMAND GROWTH FORECAST

The International Energy Agency (IEA) on Wednesday trimmed its forecast for 2013 global oil demand growth in its monthly report, adding pressure to crude prices.

The IEA also said U.S. crude oil production gains would be enough to protect against most shocks from potential supply interruptions.

The IEA report came after the EIA trimmed its own demand growth expectations and the Organization of the Petroleum Exporting Countries (OPEC) left its forecast unchanged in reports released earlier this week.

OPEC also warned that risks to the U.S. and euro zone's economic growth could dampen demand growth.

NARROWING SPREAD

The EIA also reported a 1.53-million-barrel drop in crude oil stocks last week at Cushing, Oklahoma, delivery point for the U.S. light sweet crude contract.

"The drawdown in Cushing is significant. That's the area where the glut is happening ... and a drawdown in this part of the world would probably mean the spread between Brent and WTI should continue to come in," said Phil Flynn, analyst at Price Futures Group in Chicago.

Brent's premium to U.S. crude fell below $16 a barrel to its lowest since Jan. 23.

Brent fell for a fourth straight session. The slide was exacerbated after Tuesday's news that South Korea plans to close a tax loophole on a rebate for crude in April, according to a customs source. That could limit the flow of North Sea crude to the country.



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