Brent crude oil settled lower and U.S. crude settled slightly higher on Tuesday as traders weighed concerns about demand and the possibility of a prolonged pipeline outage in the U.S. Midwest.
Brent crude oil rose early, then reversed to fall as much as $1 a barrel, before settling down 39 cents a barrel at $110.69. U.S. crude fell in the morning, then rebounded to settle up 12 cents at $97.19.
U.S. crude slipped in post-settlement trading, and was down 22 cents at $96.85 as of 4:12 p.m. in New York (2012 GMT).
Uncertainty surrounding the impact of the ruptured Exxon Mobil Pegasus pipeline in the U.S. Midwest has kept U.S. light sweet crude prices volatile. The premium of Brent to U.S. light sweet crude ended at $13.50 after the spread between the two widened as much as $14.66.
"Clearly the big factor is this Pegasus pipeline, and I don't think anyone has a firm handle on how long it's down for," said Andy Lebow, vice president at Jefferies Bache in New York.
"The guesses I've seen have been from five days to 10 days to two weeks. The longer it's down for, the more it will support Brent at the expense of U.S. crude."
Traders said the pipeline problem is likely to keep crude oil bottled up in the Midwest, depressing prices, as stockpiles of oil build near the delivery point of the U.S. crude oil benchmark contract in Cushing, Oklahoma.
Brent May crude hit an early high of $111.79. The session low of $110 a barrel was below the 200-day moving average of $110.17.
The Brent/U.S. crude spread narrowed in choppy trading to settle at $13.50 a barrel, after widening to as much as $14.66 during the session.
Exxon said it was developing a plan to excavate, remove and replace the ruptured portion of the Pegasus Pipeline, shut on Friday after a leak released thousands of barrels of crude into a housing development in Arkansas. The company had not yet provided an estimate of when it might reopen the nearly 65-year-old pipeline, which can carry more than 90,000 barrels per day (bpd) of crude to Texas from Illinois.
US GASOLINE FALLS SHARPLY
U.S. gasoline futures posted the biggest percentage drop in the oil futures complex, falling more than 2 percent to below the 50-day moving average of $3.0477 a gallon, a technical level closely monitored by chart watching traders and analysts.
"RBOB got below the 50-day moving average and that triggered sell stops and sent it down more," said Mark Waggoner, president at Excel Futures Inc in Portland, Oregon.
Gasoline futures settled down nearly 2 percent, or 6 cents, at $3.0408 a gallon.
While gasoline futures fell, U.S. heating oil rose more than a penny, as the benchmark distillate futures contract continued to attract buyers after the jumbo 4.5-million-barrel drop in stockpiles reported by the Energy Information Administration (EIA) for the week to March 22.
The EIA's report that refinery capacity use jumped 2.2 percentage points in the same week had some brokers and traders expecting refined products production to rise in coming weeks.
Analysts are also expecting U.S. crude inventories to have risen last week, according to a Reuters survey, adding to stockpiles already above 385 million barrels.
The American Petroleum Institute's weekly inventory report is due at 4:30 p.m. EDT (2030 GMT) on Tuesday, with the EIA report following on Wednesday at 10:30 a.m. EDT (1430 GMT).
A stronger dollar put pressure on dollar-denominated oil prices, while the euro weakened against the dollar on euro zone data showing the region was well into economic contraction last month.
British manufacturing also remained in contraction, and European Union (EU) data showed unemployment in February was steady at 12 percent.
The gloomy data from Europe followed Monday's report that U.S. factory activity grew at its slowest rate in three months in March, indicating a loss of momentum at the end of the first quarter.
Investors await Friday's closely watched U.S. March nonfarm payrolls report for an indication if the headwinds from a tighter fiscal policy, the sequestration or automatic spending cuts, have slowed the economy of the No. 1 global oil consumer. (Additional reporting by Robert Gibbons in New York, Peg Mackey in London and Luke Pachymuthu in Singapore; Editing by Andrew Hay, Bob Burgdorfer and Grant McCool)