LONDON: Oil prices dipped towards $124 a barrel on Wednesday on worries demand for crude could be curtailed after the US central bank dashed hopes of further economic stimulus and news Saudi Arabia would likely keep output high in the event of a stock release.
Industry data showing a larger-than-expected rise in crude inventories in the United States, the world's top oil consumer, also pressured prices, but losses were capped by further disruption in exports from the North Sea.
Brent crude futures fell by 40 cents to $124.46 a barrel by 0940 GMT, after earlier touching a low of $124.23.
US crude futures lost 79 cents to $103.22, after falling by more than $1 in the previous session.
Oil prices have been volatile this week in thin volumes, analysts said, with Brent rallying by two percent on Monday alone but falling by nearly 1 percent the next day.
"We expect yet another jittery trading session today as volumes remain light with both benchmarks stuck below this week's highs," said Andrey Kryuchenkov at VTB Capital in a note.
Minutes from the Federal Reserve policymakers' meeting in March released overnight revealed reduced appetite for further quantitative easing amid timid improvements in the US economy.
"QE has had a clear effect on some of the commodity markets over the last few years," said the head of Natixis' commodity research Nic Brown.
Between the Fed's announcement of a second round of quantitative easing in November 2010 until its end in June 2011, Brent futures rallied by around 35 percent.
"It's no surprise that with the Fed dampening hopes of QE, gold is down this morning. Its effect on oil markets has been less pervasive but still important," Brown added.
In the absence of further money printing, the US dollar index inched up. A stronger dollar can render greenback denominated commodities such as gold and oil more expensive to other currency holders.
In Europe, eyes were on auctions from struggling southern euro zone members, with Spain targeting a bond issue of around 3.5 billion euros ($4.65 billion), while Portugal looked to issue its longest-dated debt since it took a bailout.
"The outcome could be a good indicator of market sentiment: it could be a sign of whether the market believes if the sovereign debt crisis is over or not, and could impact risk appetite or aversion," said Commerzbank's Carsten Fritsch.