LONDON: Brent crude oil dipped slightly on Wednesday as expectations for a build in US crude inventories and a stronger dollar offset support from improving economic sentiment, though supply worries helped keep it near 11-month highs.
Brent crude fell 12 cents to $126.10 a barrel by 1138 GMT, after settling at its highest close since last April at $126.22 on Tuesday. US crude eased 10 cents to $106.61.
Brent has been contained in a range between around $124 and $126 for a week, and traders said supply worries were keeping it at these elevated levels.
"The market is pinned in a sideways range," said Christopher Bellew at Jefferies Bache. "Without Iran, Syria and maybe Sudan, we would be lower. But without more newsflow on Iran we don't go higher either."
Emphasizing the fact that supply worries are a major concern for market players, the International Energy Agency (IEA) said oil supply from non-Opec countries will grow less than expected.
"I would expect a break to the upside at some point as supply worries, low stock cover and good growth in Far East outweigh Europe's travails," Bellew said.
Attention will turn to data from the US government's Energy Information Administration at 1430 GMT, which is expected to report a fourth straight rise in weekly crude oil inventories.
US commercial crude oil stockpiles were forecast to have climbed 1.7 million barrels, according to a Reuters survey of analysts. Gasoline stocks were expected to be down 1.0 million barrels, with distillates to have fallen 1.3 million.
The industry group American Petroleum Industry on Tuesday estimated US crude inventories rose 2.8 million barrels in the week to March 9.
DOLLAR GAINS
A strengthening US dollar also pressured Brent crude oil prices. Gains in the dollar can pressure dollar-denominated commodities by making them more expensive to consumers using other currencies.
In euro terms Brent crude oil was just below all-time highs set the previous session, piling pressure on a fragile economic recovery in Europe, which is lagging the United States and Asia.
The dollar hit an 11-month high against the yen and a one-month high on the euro on Wednesday, extending its gains after a modest brightening of the Federal Reserve's economic forecasts.
"We would argue that downside risks for oil prices are currently limited as economic stabilisation suggests that demand growth might have troughed," said Tobias Merath, head of global commodity research at Credit Suisse Private Banking.
The US central bank slightly upgraded its economic outlook on Tuesday, saying it expected "moderate" growth over coming quarters and a gradual decline in the unemployment rate, although it said the jobless rate "remains elevated".
Exporter Saudi Arabia and other Gulf producers warned oil prices could spike higher if tensions between the West and Iran do not subside. The Saudi oil minister said oil markets were generally balanced but stood ready to fill any supply shortfalls.
A majority of Americans would support US military action against Iran if there were evidence that Tehran was building nuclear weapons, even if such action led to higher gasoline prices, a Reuters/Ipsos poll showed on Tuesday.
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