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Brent futures slipped below $108 a barrel on Wednesday as investors were reluctant to lock in fresh positions, awaiting more clarity from Fed Chairman Ben Bernanke on the US central bank's plan to roll back its monetary stimulus.
Markets will focus on the dollar, which has gained marginally after falling overnight on worries Bernanke may indicate the Fed will continue its economic stimulus for longer than expected. The slide boosted most commodities on Tuesday, but oil was capped by a surprise build in US gasoline stocks.
Brent crude slipped 17 cents to $107.97 a barrel by 0426 GMT, after sliding to as much as $107.80. The August contract, which ended on Tuesday, settled at $109.40, the highest finish since April 2.
US oil fell 26 cents to $105.74, extending losses after closing 32 cents down.
"Traders would be very cautious in taking fresh positions given that they have been burnt on both sides, on the dovish side as well as the hawkish side," said Ben Le Brun, an analyst at OptionsXpress in Sydney, speaking of the US Federal Reserve's stimulus programme.
Bernanke is set to testify to Congress on Wednesday and Thursday, and may clarify on when the central bank will roll back its $85 billion a month bond-buying programme. His comments last week that accommodative policy would be needed for the foreseeable future surprised investors, who had bet on a scale-back as early as September.
"He is likely to reaffirm comments made during last week's speech in which he clarified the Fed's position that (interest) rates could stay low for a considerable period following the end of quantitative easing," analysts at ANZ said in a note.
Oil, particularly the US benchmark, is also under pressure after an industry report showed a build in gasoline stocks in the United States at the peak of the driving season.
STOCKPILES
Gasoline stocks rose by 2.6 million barrels, compared with analysts' expectations in a Reuters poll for a 500,000 barrel draw, data from industry group the American Petroleum Institute (API) showed. Distillate stockpiles, which include diesel and heating oil, rose by 3.8 million barrels compared with expectations for a 1.9 million barrel gain.
The builds overshadowed crude inventories that fell for a third straight week, by 2.6 million barrels, higher than expectations for a 2 million barrel decline.
US crude inventories plunged 20 million barrels over the previous two weeks, the deepest two-week draw on record, Energy Information Administration data showed on July 10.
Worries of supply disruption from the Middle East eased somewhat on hopes the West would soon resume talks with Iran over its disputed nuclear programme.
"It is probably too soon to speculate, but any positive move forward would take some of the risk premium off," Le Brun said.
Investors still remain concerned about disruption from other major exporters such as Libya. Armed protesters stormed the eastern Libyan oil port of Zueitina demanding export operations be halted, a witness said.
