Oil edges higher; eyes stockpiles, EU meeting

US oil edged higher on Wednesday, but remained well short of a near three-month high hit the previous day on a build in crude stocks stocks and worries that Europe may fail to deliver a solution to the sovereign debt crisis.

Brent, which has lagged the US crude rally of 6.5% in the last three sessions, edged above USD 111.

Brent crude futures were up 31 cents to USD 111.23 a barrel at 0406 GMT. US crude rose 24 cents to USD 93.41 a barrel.

This brought Brent's premium to US crude to USD 17.82 after it closed on Tuesday at USD 17.75, the narrowest spread settled since early July and sharply narrower from a record of about USD 28 a barrel on Oct. 14.

"There could be a rebalancing going on there in the spreads. The spreads came in and it was a little overdone," said Tokyo-based risk manager Tony Nunan of Mitsubishi Corp.

"There's been a lot of hope that the euro zone would get their act together. But maybe that was a little bit overdone on the upside and a little over optimistic. The news that I am seeing is going to be a slight disappointment and WTI is now reacting to that."

European Union finance ministers have cancelled a meeting set for Wednesday but the summit of EU leaders and of the euro zone leaders will proceed as normal, an EU spokesman said on Tuesday.

"This market is not renowned for its patience, so the delay of the European finance ministers meeting was far from warmly received by traders," said senior FX dealer at CMC Markets Tim Waterer in a morning note.

Prospects for a comprehensive deal to resolve the euro zone debt crisis look dim, with deep disagreement remaining on critical aspects of the potential agreement, including how to give the region's bailout fund greater firepower.

"It seems that every time we have a meeting, the market really builds on higher expectations," said Jeremy Friesen, a Hong Kong-based analyst at Societe Generale, who added that the market will then have to price in the effects of results falling short of expectations.

"All things near term do not look really optimistic. So if we do get a bearish report in between, like the API, then this should cap this rally."

U.S. crude oil stocks rose 2.7 million barrels last week, the industry group American Petroleum Institute said in a report released late on Tuesday, more than double the 1.3 million barrel build forecast by a Reuters poll of analysts.