LONDON: Oil slipped towards $102 a barrel on Thursday, with a surprise rate cut from the European Central Bank boosting the dollar and hitting commodities that are priced in the U.S. currency.
The ECB cut interest rates to a record low, unexpectedly bringing borrowing costs close to zero to lift inflation from rock-bottom levels and support the stagnating euro zone economy.
The move prompted the euro to fall to its lowest in more than a year against the dollar.
"A stronger dollar is hitting crude futures today, somewhat diminishing the positive broader market impact from the surprise ECB rate cut," said Andrey Kryuchenkov, analyst at VTB Capital.
Brent crude for October delivery fell 37 cents to $102.40 a barrel by 1329 GMT.
Brent hit a 16-month low on Tuesday, before bouncing back by $2.43 on Wednesday.
More volatility is expected as traders await key economic data from the United States and developments in Ukraine.
Oil futures on both sides of the Atlantic have seen sharp swings, buffeted by moves in the dollar and hopes that peace talks in Ukraine may brighten the demand outlook in Europe.
There are likely to be further such moves due to the lack of clarity on the situation in Ukraine and the prospects for economic growth, said Olivier Jakob at Petromatrix in Zug, Switzerland.
"The price will be dependent on headlines, and it's hard to trade with much conviction which is why we are seeing such big moves," he said.
U.S. crude fell 79 cents to $94.75 a barrel, after settling $2.66 higher on Wednesday.
FUEL STOCKS RISE
Oil prices were also pressured by data from industry group American Petroleum Institute (API) - released after Wednesday's session closed - which showed U.S. fuel stocks rose last week.
Gasoline stocks gained 362,000 barrels, compared with analysts' expectations in a Reuters poll for a 1.3-million-barrel decline. Distillate fuel stocks, including diesel and heating oil, rose by 385,000 barrels, compared with expectations for a 500,000-barrel drop, the API data showed.
U.S. crude underperformed Brent due to a smaller-than-forecast drop in stocks at the oil hub in Cushing, Oklahoma. East Coast refiners are finding it harder to take crude from the Bakken shale area due to railway maintenance, making the oil more likely to head to Cushing.
The more closely watched update from the U.S. government's Energy Information Administration is due at 1500 GMT. It is delayed by one day due to a U.S. holiday on Monday.
Investors will be watching nonfarm payrolls data on Friday for further clues on the outlook for the U.S. economy.
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