LONDON: Brent crude slipped to $106 a barrel on Wednesday after hitting a two-month low as the prospect of a possible rise in Iranian oil exports weighed. Investors looked ahead to weekly oil inventories data from the United States to assess shorter term supply.
"If the 4 million fall in API crude inventories is vastly different from the EIA then we may see prices move," said Christopher Bellew, an analyst at brokerage Jefferies Bache in London.
"WTI has become disconnected and represents very much the domestic prices in the US and Brent represents global demand and geo-political factors like potentially more Iranian exports."
February Brent crude was down 21 cents to $106.18 a barrel by 1330 GMT, after hitting its lowest level since November 12 at $105.80 a barrel.
US crude for February delivery rose 54 cents to $93.13 after settling up 0.86 percent in the previous session, buoyed by data from the American Petroleum Institute (API) on Tuesday which showed a larger-than-expected draw on crude inventories.
The US Energy Information Administration, a government agency, is expected to release its stockpile data at 1530 GMT.
"The blistering cold in the northern US last week could result in larger-than-expected draws on heating oil-distillates, whereas a build in crude and gasoline seems likely," Michael Poulsen, oil manager at Global Risk Management, wrote in a daily note.
The spread between US crude futures WTI and Brent has narrowed since the start of the week on the imminent start of a major new pipeline able to pump up to 700,000 bpd from the mid-continent of the United States to refineries on the Gulf Coast, meaning that this crude will compete more evenly with the international market.
"While the front structure of Brent is very strong, Brent was weaker on a prompt flat price basis and it lost about $1 a barrel of its premium to WTI.
The Keystone Cushing-Gulf crude oil pipeline is expected to start operating on January 22nd and that will bring a new challenge for the Brent-WTI spread," Olivier Jakob of Petromatrix consultancy in Switzerland said in a daily oil note.
Brent prices have been declining this week as some Libyan exports have restarted. Iranian oil exports could also rise by some 500,000 barrels per day (bpd) through a oil-for-goods deal being negotiated with Russia, according to Russian and Iranian sources.
Major world powers and Iran have continued to move ahead on an interim deal that eases some sanctions on Tehran in exchange for curbs on its nuclear programme.
Any signs that the initial deal might lead to higher Iranian oil exports will add to global supply and depress prices. The preliminary accord between Iran and the P5+1 group of world powers goes into effect on Jan. 20.
Under the deal, Iran's oil exports are to hold at current levels of about 1 million barrels per day (bpd).
Talks on a final settlement to the long dispute over Tehran's nuclear ambitions will start in February.
The resumption of oil production at Libya's El Sharara field has also weighed on prices, although the main issue is still when the blockade at Libya's eastern oil ports will end.
On the bullish side, China's implied oil demand will grow quicker this year at around 4 percent as new refineries start up, the country's top oil company forecast, after slowing economic growth likely led to its weakest rise in five years in 2013.
The forecast by China National Petroleum Corporation (CNPC) saw China's oil demand rising to 10.36 million barrels per day (bpd), which would translate into an incremental demand of nearly 400,000 bpd in 2014.
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