SINGAPORE: Brent crude futures held above $118 on Thursday as investors remained cautious ahead of a key Spanish bond auction as renewed fears of a euro zone debt crisis kept a lid on oil demand.
A higher-than-expected fourth straight week of inventory build in the United States also weighed on crude oil markets.
Brent June crude gained 38 cents at $118.35 a barrel at 0254 GMT, after hitting an over 2-month low of $116.70 in the previous session.
US May crude inched up seven cents to $102.74, after falling more than a dollar in the previous session. The May contract expires on Friday.
"Everyone's waiting for the Federal Open Market Committee meeting next week on monetary policy, and the Spain auction later today, with the outcome potentially having an impact on the oil market" said Ken Haswegawa, a commodity derivatives manager at Newedge Brokerage in Tokyo.
"Fundamentally, there's also a lot of inventory on crude that's weighing on the market, but the Iran talks are providing support for the oil market."
A more challenging longer-term debt sale looms on Thursday, when Spain, euro zone's fourth-largest economy, will sell two-and 10-year bonds, even as an auction of 12- and 18-month Spanish debt earlier this week was considered a success. Investors see the sales as a test of demand for the country's debt.
Spanish banks' bad loans rose to their highest level since Oct. 1994 in February, to 8.2 percent of their credit portfolios, Bank of Spain data showed on Wednesday, as the sector continues to battle sliding house prices and a looming recession.
All eyes are also on next week's meeting of the policy-setting Federal Open Market Committee (FOMC), which will be closely scrutinized for any hints of a third round of quantitative easing, which could have an impact on oil prices.
US STOCKS
US crude stocks jumped 3.86 million barrels in the week to April 13, increasing the four-week build to nearly 22.8 million barrels, data from the US Energy Information Administration (EIA) showed.
This far exceeded analyst expectations of a rise of 1.4 million barrels. The build helped to offset ongoing supply concerns due to a string of disruptions across the globe this year, as well as worries about the potential loss of oil from Iran due to EU and US sanctions against Iran set to take effect in July.
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