Oil eased below $106 a barrel on Wednesday after U.S. crude oil stocks swelled to the highest level in more than two decades and dented the outlook for demand in the world's top consumer.

Data from industry group the American Petroleum Institute showed a sharp rise of 5.1 million barrels in crude inventories last week, far higher than forecasts of a 1.5 million-barrel rise.

The U.S. Energy Information Administration (EIA) later on Wednesday could show a rise of 1.4 million barrels, according to a Reuters poll of analysts.

Brent crude futures slid 61 cents to $105.62 a barrel by 1221 GMT, while U.S. crude fell 55 cents to $93.65.

"The actual physical demand, as evident from the wet barrels market, remains subdued," said VTB Capital oil and commodities strategist Andrey Kryuchenkov.

OPEC noted the weaker consumption by marking down its forecast for global growth in oil demand in 2013. The move by the Organization of the Petroleum Exporting Countries in a monthly report follows a similar downward revision by the EIA.

"After a few days of short covering the oil complex is starting today's session on the defensive after a bearish API fundamental snapshot along with a weak demand projection by the EIA," said Dominick Chirichella of Energy Management Institute.

"The fundamentals are becoming more bearish but the technicals are improving slightly."

Oil had been supported earlier in the session by China's import growth and simmering tension in Iran and North Korea.

China's total imports surged in March, suggesting recovery in the world's No 2 oil consumer was gathering momentum.

Chinese imports grew 14.1 percent in March, while exports climbed 10 percent, relieving concerns over the subdued import growth of previous months. Crude imports slipped 2.1 percent from a year ago, in line with market expectations.


Some analysts said the accelerating restocking process in some industries and a favourable base effect from a year ago may have flattered China's March imports, which otherwise remain constrained by falling global commodity prices and a slower-than-expected upturn in investment demand.

Export growth in coming months may not be able to match the pace of January and February, even if the recovering global economy continues to bolster demand for goods from Chinese factories, they added.

The annual dip in crude imports did not surprise the market as some state-run refineries started planned overhauls and crude runs at independent refineries also declined on poor margins.

Diplomatic worries over North Korea and Iran also checked losses.

Tension in the Korean peninsula escalated after North Korea moved one long-range missile in readiness for a possible launch and South Korea said it had raised its surveillance.

Iran, which is engaged in a dispute with Western nations over its nuclear programme, said it had begun operations at two uranium mines and a milling plant after weekend talks to resolve the dispute ended in stalemate. (Additional reporting by Ramya Venugopal in CHENNAI, INDIA; editing by William Hardy)