LONDON: Brent crude rose above $110 a barrel on Thursday on signs of stronger demand from top oil consumer the United States, with a sharp drop in its gasoline stocks adding to recent data showing a strengthening economy.
The brighter demand outlook underpinned prices already boosted by concerns about the loss of most supply from Libya and as the situation in Ukraine creates a widening rift between the West and Russia, the world's second-largest oil exporter.
Still, some investors looking at price charts saw the market as prone to a correction as it has risen close to the top of the narrow price band in which it has traded for much of 2014.
Brent crude was up 28 cents at $110.09 a barrel by 1019 GMT after losing 21 cents on Wednesday.
U.S. crude oil gained 14 cents to $102.86, after ending Wednesday down $1.39 as traders booked profits ahead of a government report due later on Thursday that is expected to show a build in overall crude stocks.
"Futures prices are still be supported by the risk premium related to Libya and Ukraine, though most of that is priced in by now," Andrey Kryuchenkov at VTB Capital in London said.
"There are signs of weakness, though, with prices in the physical market easing and expectations of more cargoes coming out of the North Sea in June. Brent prices may pull back towards $107 a barrel."
In the North Sea spot market, cargoes of Forties crude oil, the largest crude stream underpinning the Brent futures contract, fell to a discount of 85 cents a barrel versus dated Brent on Wednesday, the weakest level in two years.
The U.S. benchmark fell more sharply than Brent overnight because it failed to breach key resistance at $105 a barrel, said Ken Hasegawa, a commodity sales manager at Newedge Japan.
Brent has recovered nearly 3 percent from a low of $106.85 touched on May 1, while the U.S. benchmark has gained more than 4 percent over the same period.
U.S. CRUDE STOCKS
U.S. crude's discount to Brent was around $7.20 a barrel on Wednesday, slightly more than the average difference between the two benchmarks over the last 50 days of $6.86.
Crude stocks in Cushing, Oklahoma, the delivery point for the U.S. benchmark, fell by 1.5 million barrels, data from industry group the American Petroleum Institute showed.
But overall inventories rose by 3.5 million barrels in the week to May 23 to 383.9 million, compared with analysts' expectations for an increase of 483,000 barrels.
In addition, gasoline stocks fell by 1.4 million barrels, compared with expectations for a 283,000 barrel gain.
Oil traders waited for the more closely watched data from the U.S. government's Energy Information Administration (EIA) due at 1500 GMT.
In Libya, acting prime minister, Abdullah Al-Thinni, refused to hand over power to a newly elected premier after questioning his legitimacy in a deepening confrontation among the OPEC nation's rival factions.
Libya's oil output has dropped to just 155,000 barrels per day (bpd) amid the current political crisis, a National Oil Company official said on Monday, well below the post-civil war peak near 1.4 million bpd.
Oil traders also watched the situation in Ukraine, where relative calm returned to the streets of Donetsk after the biggest battle of the pro-Russian separatist uprising in eastern Ukraine.
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