Brent slips as euro zone doubts resurface

Investors also were reluctant to take big new positions ahead of inventory data from the United States later in the day.

Brent futures lost 79 cents to $106.35 a barrel by 0902 GMT after falling more than a dollar earlier. US crude shed 94 cents to $83.51 a barrel.

Oil prices jumped more than 3% on Tuesday, bolstered by expectations that European officials would aggressively tackle the debt crisis in its peripheral economies, particularly Greece, which eased fears about the outlook for demand.

However, the plans face opposition in Germany, and there are signs of a split within the currency bloc over the terms of Greece’s next bailout.

Olivier Jakob, an analyst at Petromatrix in Zug, Switzerland said the sharp spikes in prices were due to the inability of investors and automatic trading programmes to interpret political news effectively.

“The headline-reading trading machines cannot understand the complexity of Europe, so big up moves (are) followed by big down moves as they are unable to have a proper trading read on Europe," he said.

STOCKS, STRIKES WATCHED

The market will be next be looking for data from the US Energy Information Administration, due out later on Wednesday, with crude stocks expected to have risen.

“Strong inventories could weigh on prices as some of the missing barrels that led to a fall in inventories are likely to show up this week," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

A sharp rise in US gasoline inventories weighed on sentiment on Tuesday, with industry data showing a steep 4.6 million barrel rise last week, far above the 1 million barrel gain expected by analysts.

Crude stocks rose by 568,000 barrels in the week to 23 September, the American Petroleum Institute said on Tuesday. Analysts polled by Reuters had projected an 800,000 barrel rise on average.

Traders were also keeping an eye on the implications of strike action in French refineries.

The powerful CGT trade union will discuss possible strikes at refineries across France, which led to recall of a month-long stoppage a year ago that altered global flows of crude oil and liquid fuels.

Last October physical crude prices fell, while there was a glut of unrefined fuel in the Mediterranean and product prices rose.

“Possible impact hinges on duration and spreading of the strike action," said Commerzbank’s Fritsch.

“A multi-week long nationwide strike could lead to local supply bottlenecks and push European product prices up. On the other hand, it could ease the supply situation in the European crude market."

Brent is expected to face resistance at $107.05, while the resistance for US crude stands at $85.40 per barrel, according to Reuters market analyst Wang Tao.

Brent is on track to fall 5.5 percent in the third quarter, its second straight quarterly decline and the steepest since the second quarter of 2010.

Oil has fared better than commodities such as copper and gold in the recent sell-off due to tight supplies in the physical market, analysts said.

“We would highlight that because of that very tightness in the physical markets, oil prices have held up far better than other commodity markets, and we expect that outperformance to continue," Barclays Capital said in a research note.

Royal Dutch Shell recently shut in 25,000 barrels per day of oil production in Nigeria, while Libyan crude production has yet to reach the market.

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