Oil dips below USD 121 as bearish data weighs

Brent crude dipped below USD 121 a barrel on Thursday as a sharp rise in American crude stocks and disappointing economic data from the world's biggest energy consumer outweighed a weaker dollar.

US crude for June was down 64 cents to USD 108.60 a barrel by 0900 GMT, while ICE Brent crude fell 35 cents to USD 120.87 a barrel. Analysts and traders said bearish inventory data from the US Energy Information Administration on Wednesday was weighing on US crude in particular. Weekly US crude oil stocks rose by 3.4 million barrels even as imports fell, contrary to analysts' expectations for a 2 million-barrel gain. "The EIA numbers did not help the bulls," said Edward Meir, a senior commodity analyst at MF Global in the United States. US crude was also weighed down by economic data showing a sharp slowdown in the services sector and less hiring by private companies in April, indicating a sputtering recovery in the world's largest economy. "We are beginning to see the impact of high oil prices on oil demand and on the economy," said Christophe Barret, an energy analyst at Credit Agricole."All the indicators we got yesterday were pretty low, and the demand numbers from the EIA were pretty low too." The data does not bode well for a key labour report on Friday, one of the most closely watched US economic indicators. A weaker dollar was providing Brent with some support as the US currency fell 0.22% against a basket of currencies, reversing an earlier gain of 0.2%. Christopher Bellew, an oil trader at Bache Commodities, said oil was still being underpinned by the ongoing conflict in Libya and the violent crackdown on protesters in Syria. Overnight Syrian troops stormed a Damascus suburb and made arrests. According to technical charts, Brent crude is forecast to fall further to USD 119.03 per barrel, while US crude futures are headed to USD 107.52, said Reuters market analyst Wang Tao. Rate watch Markets are braced for more hawkish rhetoric from the European Central Bank (ECB) after its policy meeting later on Thursday. ECB President Jean-Claude Trichet's news conference will be closely followed for any use of the phrase "strong vigilance." This would be taken to signal a rate rise in June rather than July, which is the market consensus. Commerzbank analyst Carsten Fritsch suggested that raised expectations of a June rate increase would help the euro strengthen against the dollar, which could boost oil prices. "The ECB raising rates is a sign of stronger economic growth," he said. In Russia, which is the world's largest oil producer, Deputy Prime Minister Igor Sechin said the government might try to limit petrol prices by focusing its efforts on crude oil. Russia has already imposed price caps and protective export tariffs on the motor fuel to battle price rises. Meanwhile, China is mulling whether to introduce a resource tax of between five and 10% on the domestic sales of crude oil and natural gas as part of the country's overall tax reform.