Brent slipped 2 cents to US$116.23 a barrel by 0431 GMT, after ending US$2.22 up at the highest settlement since May 2
Brent crude held steady on Thursday, staying near a three-month high above US$116 on concerns about disruptions to supply from the Middle East and a steeper-than-expected drawdown in oil stocks in the world's top consumer, the US.
The European benchmark has risen more than a third in less than two months from the low for the year of US$88.49, as worries about a conflict over Iran's disputed nuclear programme escalate and as investors lock in positions on hopes of more stimulus measures from central banks.
Data on Wednesday showing a steep drop in US stocks exacerbated global supply worries.
Brent slipped 2 cents to US$116.23 a barrel by 0431 GMT, after ending US$2.22 up at the highest settlement since May 2. US crude fell 8 cents to US$94.25, after rising 90 cents to its highest settlement since May 14.
"The market is reacting to the US inventory report because it showed an unexpectedly large drop," said Victor Shum, a senior partner at oil consultancy Purvin & Gertz.
"Added to that is the ongoing geopolitical issue in the Middle East with recent comments suggesting a conflict."
But the steep gains since the low touched on June 22 may have been excessive, putting prices at risk of a correction, Shum said, adding that the U.S. contract may slip to US$90 a barrel, with Brent commanding a US$15 premium.
"Expectations of central banks doing another round of quantitative easing have contributed to some of the current strength in prices. That's put oil in an overbought territory because we have not seen any actual move in that direction - it has just been talk. I would say - show me the money first," Shum said.
Reflecting the deepening crisis in the Middle East, the Organisation of Islamic Cooperation (OIC) suspended Syria's membership early on Thursday at a summit of Muslim leaders in Makkah, citing President Bashar al-Assad's violent suppression of the Syrian revolt.
US crude stockpiles fell more than expected last week, slipping 3.7m barrels to 366.16m barrels, the Energy Information Administration reported, despite a modest rise in crude imports as plant utilisation remained high. Analysts had forecast a drop of 1.7m barrels.
Inventories of refined products were mixed, with gasoline stocks down 2.37m barrels against an expected 1.5m barrels. Distillates, which include diesel and heating oil, rose 677,000 barrels versus a forecast decline of 200,000 barrels, the EIA said.
Crude stocks may have also declined in part due to the fall in output because of hurricanes in the US.
"This could be due to plant utilisation as they say, but it is certainly affected by market disruptions from bad weather in the US," said Natalie Robertson, an analyst at ANZ said. "This would be taken as positive for crude in the coming weeks."
Investors are also looking out for further indications on monetary stimulus measures in the US. Consumer prices there were flat in July for a second straight month and the year-on-year increase was the smallest in more than 1-1/2 years, giving the Federal Reserve room to tackle high unemployment.
Other reports on Wednesday showed home-builder sentiment in August hit its highest level in more than five years, however, while industrial production rose in July.
Richard Fisher, the president of the Dallas Federal Reserve Bank, repeated his view that more monetary policy easing would not help boost employment and could even hurt the US economy as it could increase market uncertainty.
"The market is very sentiment-driven at the moment and any easing or policy change will certainly impact prices," ANZ analyst Robertson said. "Right now, prices are very easily swayed so we can expect choppy price action in the coming weeks."
Brent will gain more to US$117.96 per barrel, as indicated by a Fibonacci retracement analysis, while US oil is expected to break resistance at US$95.03 and rise towards US$96.87, according to Reuters technical analyst Wang Tao.