Brent slips, stock release report pressures

Brent crude fell for a second session on Wednesday, weighed by the possibility of a release of strategic oil reserves by the United States and European nations.

However, oil remained supported by supply concerns on rising tensions between Iran and the West, production problems in the North Sea and bombing in South Sudan.

Brent May crude had fallen 99 cents to USD 124.55 a barrel by 0842 GMT. US crude was down 76 cents to USD 106.57.

France is in contact with Britain and the United States on a possible release of strategic oil stocks to push fuel prices down, Le Monde daily said on Wednesday, citing presidential sources.

A release of strategic oil stocks "is a matter of weeks," the French newspaper said. French President Nicholas Sarkozy will face an election in May.

Traders have been monitoring the possibility of a strategic release of oil since its price spiked on worries about sanctions on Iran's oil exports. The sanctions are due to be fully implemented in July.

However, some analysts say an imminent strategic oil release is unlikely.

"They'll wait until closer to the July deadline, as at the moment shortages are not that acute," said Filip Petersson, commodity strategist at SEB in Stockholm.

The United States has not changed its stance on tapping its emergency oil reserves, keeping "all options on the table" regarding its response to high oil prices, a government official said.

Investors were also watching crude inventories to determine how tight supply is.

US crude stocks rose 3.6 million barrels last week, the American Petroleum Institute (API) said on Tuesday, against analysts' expectations for a 2.6 million barrels rise.

US commercial crude oil stockpiles were forecast to have increased last week due to greater imports, an extended Reuters poll of analysts showed on Tuesday.

"Crude prices could come under further pressure if US official inventory data confirms expectations of a build," ANZ analysts said in a note.

US WORRY

Worries about the health of the US economy also kept gains in check.

Federal Reserve Chairman Ben Bernanke told ABC News on Tuesday that it is too soon to declare victory in the US economic recovery.

Data on Tuesday showed Americans were more worried about inflation in March than at any time in the last 10 months and consumer confidence waned in the wake of higher gasoline prices.

US average gasoline demand fell 1.5% in the week to March 23, from the previous week, MasterCard said in its separate weekly Spending Pulse report. Demand was off 7% from the year-ago period, the report said.

A reduction in Forties crude supply and news that South Sudan's oil fields were bombed pushed up oil prices on Tuesday.

Hopes of a quick restart of South Sudan's oil production were dashed after Sudan and South Sudan accused each other of launching fresh attacks on oil-producing areas either side of their contested border on Tuesday. Sudan said it hoped the conflict would not escalate into war.

In the North Sea, oil flows through the Forties pipeline have been curbed by the shutdown of Total's Elgin platform following a gas leak, oil traders said.