Brent crude prices fell a third straight session in choppy trading on Tuesday, while U.S. oil posted a fourth consecutive gain, tightening the spread between the two contracts to the narrowest since January.
Brent's premium to U.S. crude dropped as low as $16.84 a barrel, as the U.S. crude contract rallied after running into firm support the previous two sessions at just above $90.80, near the 100-day moving average.
"The narrowing (Brent-U.S. crude) spread prompted some more aggressive selling of the spread," said Mark Waggoner, president at Excel Futures Inc in Portland.
Brent briefly dipped 2 cents below its own 200-day moving average of $109.32 a barrel and seesawed with the euro and dollar.
The Brent/U.S. crude spread is narrowing as crude oil traders await a Texas crude oil pipeline reversal that will help alleviate the glut of crude at Cushing, Oklahoma, delivery point for the U.S. futures contract.
Brent April crude fell 57 cents to settle at $109.65, after reaching $111.20, but faltering ahead of the 100-day moving average of $111.42. The Brent April contract expires on Thursday.
A trimmed forecast for economic growth in the United States and the euro zone in OPEC's monthly report, along with expectations of rising U.S. oil output, applied pressure to oil prices even as the producer group left its forecast for 2013 global petroleum demand growth steady.
The U.S. Energy Information Administration (EIA) cut its 2013 world oil demand forecast slightly in its monthly report, but also cut the forecast for non-OPEC output.
Also helping curb Brent prices was news that South Korea plans from April 1 to close a tax loophole on a rebate for crude imports processed by refineries into fuel for export, according to a customs source, which may affect the flow of Europe's North Sea crude to the country.
U.S. April crude rose 48 cents to settle at $92.54 a barrel, having reached $93.47.
"OPEC reported an increase in its oil production, and North Sea production continues to rise," John Kilduff, partner at Again Capital LLC in New York, said in a note.
"Offsetting that bearish news, China's implied energy demand rose ... in February," Kilduff added.
News that China's implied oil demand rose in February, up 4.9 percent from the same month in 2012, provided support for crude futures along with the dollar index briefly turning negative.
The U.S. currency has been strengthened by Friday's supportive U.S. February employment data and Italy's credit rating downgrade.
U.S. RBOB gasoline also seesawed in volatile trade, settling 0.22 cents lower at $3.1502 a gallon after trading from $3.1026 to $3.19.
Ethanol blending credits, known as RINs, lost nearly half their value on Tuesday after a sustained rally that took prices to record highs on Monday.
The recent jump in RIN prices had sent U.S. gasoline futures to 2013 peaks starting late last week.
U.S. heating oil, the benchmark distillate contract, fell 2 cents.
U.S. OIL INVENTORIES
U.S. crude inventories are expected to have risen last week, while distillate and gasoline stocks are expected to have slipped, according to a Reuters poll of analysts.
U.S. oil inventory data from the American Petroleum Institute is due at 4:30 p.m. EDT (2030 GMT) on Tuesday.
The government's weekly oil inventory report from the U.S. Energy Information Administration will follow at 10:30 a.m. EDT (1430 GMT) on Wednesday. (Additional reporting by Peg Mackey in London and Manash Goswami and Ramya Venugopal in Singapore; Editing by Marguerita Choy)