Oil slips on plentiful supply

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Brent crude oil futures fell on Wednesday, pressured by ample supply, although prices were still near four-month highs as data from the United States and Europe boosted confidence in the global economy.

The vast U.S. services sector extended a three-year run of growth, while data showing signs of recovery in Europe's business activity also helped convince investors that the developed markets were emerging from a slowdown.

Other risk-sensitive assets such as equities rose, but oil was down as analysts pointed to underlying demand-supply dynamics.

"There is some optimism, but the fact that we are underperforming equities indicates we are over-stretched," said Filip Petersson, an analyst at SEB in Stockholm.

"Production is well above demand, and we are heading into (refinery) maintenance, which decreases demand for oil, and this will put an upward limit on prices."

Brent was down 27 cents to $116.25 per barrel by 1111 GMT, retreating from the previous session when it hit its highest since mid-September.

U.S. crude fell $1.07 to $95.57.

U.S. crude has dropped more than 2 percent so far this week, versus a fall of 0.7 percent for Brent, as concerns about excess supply at Cushing, Oklahoma - the delivery point for the U.S. contract - weigh on the benchmark.

U.S. crude inventory data is firmly on investors' radars. Weekly inventory report from the Energy Information Administration (EIA) is scheduled for release at 1530 GMT.

Analysts estimate that U.S. commercial crude oil stockpiles rose last week on higher imports and lower refining activity.

Data from the American Petroleum Institute showed that crude stockpiles rose by 3.6 million barrels last week, more than the 2.8 million barrel rise that analysts had forecast.

EURO ZONE OPTIMISM

The crisis-ridden euro zone economy appeared to have turned a corner, this week's Markit's Eurozone Composite PMI data based on business activity across thousands of firms showed, but this was offset by worries that political strife in Italy and Spain could see a return to anxiety on the debt outlook.

"Concerns over Europe appear to have eased, although problems in the region are still a long way from being resolved and fiscal austerity measures will continue to contribute to soft energy demand throughout 2013," National Australia Bank analysts wrote in a report.

Investors will now be looking out for the European Central Bank's meeting on Thursday and China's trade numbers due on Friday for more clues on the health of the global economy and what it may mean for commodities demand.

China's January export growth was likely to have been its strongest in 11 months, though a 17 percent year-on-year surge forecast in a Reuters poll may owe as much to trade cycles and Lunar New Year base effects as a recovery in demand.

Oil markets were also monitoring developments in the Middle East where sanctions-hit Iran has taken delivery of several new tankers from Chinese shipyards, giving it more flexibility to maintain exports.

Iran and world powers announced new talks on Tehran's nuclear programme on Feb. 26, but hopes of progress were tempered when an Iranian official said the West's goal in talking was to undermine the Islamic republic.

The shooting of a Tunisian opposition politician and further violence in Syria was also on investors' radars. (Editing by James Jukwey and Jane Baird)



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