Oil prices fell by around 1 percent on Wednesday after data showed a huge increase in gasoline stockpiles in the United States last week, while disappointing euro zone and U.S. economic figures hurt sentiment about energy demand.
An increase in production by U.S. refiners helped boost gasoline inventories by the biggest weekly margin since September 2001, the Energy Information Administration said, with stocks rising by 7.9 million barrels.
While U.S. crude oil inventories fell more than forecast, distillate stocks - which include diesel and heating oil - rose by more than 3 million barrels.
"The report is solidly bearish and a welcomed development for consumers," said John Kilduff, partner at Again Capital in New York.
"The spike in gasoline inventories clears any of the remaining concerns about supplies from Hurricane Sandy."
Brent January crude lost $1.03 to settle at $108.81 a barrel, having fallen as low as $108.65. The session peak of $110.57 was a penny below the 50-day moving average.
U.S. January crude closed down 62 cents at $87.88 a barrel, having swung from $87.46 to $89.05. U.S. gasoline futures fell almost 2 percent to just below $2.64 a gallon, while heating oil was down 0.4 percent to near $2.99 a gallon.
Crude oil prices took some support from a bounce back into positive territory by stocks on Wall Street, turmoil in the Middle East, and a remark by U.S. President Barack Obama to business leaders that a budget deal was possible within about a week if Republicans compromise on taxes.
But economic data, including a lower-than-expected increase in U.S. private-sector hiring and a sharp drop in euro zone retail sales, kept concerns about the global economy in focus.
"It's a stalemate. There was some hopeful data from the U.S. last week and positive noise from China (this week), but Europe's a big worry," said Richard Langkemper, an analyst at Argos North Sea Group in Rotterdam.
The U.S. government's monthly report on nonfarm payrolls is due on Friday.
CLASHES IN CAIRO
Brent crude prices have been underpinned in recent months by Western sanctions targeting Iran's oil exports and widespread turmoil in the Middle East, which traders and analysts fear could spill into key producing countries in the region.
Unrest in the Middle East has partly overshadowed rapid increases in U.S. domestic oil production in the short term, even as the world's largest oil consumer targets a move toward energy independence by the end of this decade.
On Wednesday, clashes erupted in Cairo between supporters of Egyptian President Mohamed Mursi and protesters over a draft constitution that has split the most populous Arab nation and presented the gravest crisis to Mursi's six-month-old tenure.
Egypt's opposition wants the Islamist leader to scrap a Nov. 22 decree that gave him wide powers and shields his decisions from judicial review. Mursi has shown no sign of buckling, confident Islamists can win the referendum and a parliamentary election to follow.
U.S. OIL PRODUCTION
U.S. oil and gas production over the next two decades will be higher than previously expected, the U.S. EIA said.
In its annual energy outlook, the EIA said U.S. oil production would hit a peak of 7.5 million barrels per day in 2019 before falling to 6.1 million bpd by 2040. It had previously forecast a peak of 6.7 million bpd in 2020.
"The growth results largely from a significant increase in onshore crude oil production, particularly from shale and other tight formations," the agency said.
Offshore crude oil output will also creep higher as deepwater and ultra-deepwater portions of the Gulf of Mexico are brought into production.
"After about 2020, production begins declining gradually ... as producers develop sweet spots first and then move to less productive or less profitable drilling areas," the EIA said.
(Additional reporting by Shadia Nasralla and Simon Falush in London and Ramya Venugopal in Singapore; Editing by Alden Bentley and Dale Hudson)