Oil slipped below $120 a barrel on Wednesday and traded near its lowest in almost two months, pressured by rising U.S. inventories and concern about the strength of global demand.

Brent crude fell further a day after posting its biggest one-day percentage drop this year as part of a wider sell-off in financial markets. In contrast, European shares and the euro staged a recovery on Wednesday.

North Sea Brent was down 42 cents at $119.46 a barrel by 1256 GMT, after falling as low as $119.05, the lowest since Feb. 17. Its 2.27 percent slide on Tuesday was the biggest one-day percentage loss since Dec. 14.

"The last time Brent fell below $120 it did not stay there for very long, but this time it seems to be coming under more pressure," said Christopher Bellew, a broker at Jefferies Bache in London. "It is a hard call right now, but I would not write off the bull market just yet."

U.S. crude was up 25 cents to $101.27, narrowing Brent's premium to U.S. crude <CL-LCO1=R> to just above $18. On Tuesday, U.S. crude settled down $1.44 at $101.02.

Global benchmark Brent has risen 11 percent this year, supported by supply outages and the threat of disruption from Iran, although in recent sessions concern about rising inventories and demand has come to the foreground.

The U.S. Energy Information Administration (EIA) on Tuesday cut its 2012 world oil demand growth forecast and later on Wednesday releases its weekly U.S. supply report, which analysts expect will show a further increase in crude stocks.

Tuesday's session was the first time Brent has traded below $120 since Feb. 21. A further close below that mark could bring lower levels still into focus, a technical analyst said.

"If $120 cannot be regained then it will start to aim at $116.40, then $115.50 for the next big lines of support," said Olivier Jakob of Petromatrix. "For today, however, we will focus on the support at $119 and $118."

The next focus for the market will be the EIA's weekly supply report at 1430 GMT.

Traders will be looking to see if the figures confirm those of industry group the American Petroleum Institute, which on Tuesday reported crude stocks rose 6.6 million barrels, more than three times the forecast increase of 2.1 million barrels.

On global demand, the EIA on Tuesday cut its 2012 world oil demand growth forecast by 170,000 barrels per day (bpd) to 890,000 bpd. Monthly reports from two other closely watched forecasters, the International Energy Agency and OPEC, are due on Thursday.

Iran has agreed to renew discussions with the permanent members of the U.N. Security Council - the United States, Russia, China, Britain and France - plus Germany last month, more than a year after previous talks failed.

Oil analysts said the agreement on holding further talks could indicate progress and weigh on prices. The next round would be in Baghdad following this week's negotiations in Istanbul.

Investors were also monitoring the aftermath of a powerful 8.7 magnitude earthquake and strong aftershocks that struck off Indonesia on Wednesday, raising fears of a disastrous tsunami as in 2004.

Indonesian President Susilo Bambang Yudhoyono said there were no immediate reports of casualties or damage in Aceh, the Indonesian province closest to the initial earthquake. (Additional reporting by Manash Goswami in Singapore; Editing by Jason Neely and Keiron Henderson)