Brent oil rose by more than $1 a barrel on Wednesday after a U.S. official said it would be "very hard" to get a nuclear agreement with Iran this week.
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U.S. oil prices sank late in the session after the U.S. Federal Reserve hinted it may lift its monetary stimulus program sooner rather than later, a move that could hurt demand for oil.
A smaller-than-expected build in crude inventories and large drop in distillates supported ultra low sulfur diesel (ULSD)prices and, in turn, the oil complex for most of the session. Crack spreads, or refining margins between a barrel of U.S. oil and ULSD, widened to a seven-month high.
Oil inventories rose for a ninth straight week and remain above average for this time of year, but the large draw in distillates offset high crude supplies, analysts said.
Brent crude for January ended $1.14 a barrel higher at $108.06, after reaching a session high of $108.38. The December U.S. oil contract expired 1 cent lower at $93.33, after trading as high as $93.93.
U.S. oil futures for January delivery settled 4 cents lower at $93.85.
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U.S. oil had traded higher for most of the session until the U.S. Federal Reserve hinted that it could decide to start scaling back its monetary easing program at one of its next few meetings. Any pullback in the policy is seen as decreasing oil demand and dampening prices.
The diverging paths of the two oil contracts widened Brent's premium over U.S. oil <CL-LCO1=R>. The spread remained volatile throughout the day and widened by $1 from Tuesday's settlement to settle at $14.21 per barrel. Earlier in the session the spread narrowed to $12.26, breaching the 10-and 15- day moving averages for the first time in six sessions.
Optimism on the Iran negotiations in Geneva over its nuclear program had earlier kept prices in check. A senior U.S. official said agreement on a deal between Western powers and Iran will be "very hard" to get.
Failure to reach a deal could mean continued sanctions against the Islamic Republic and prolonged cuts in its crude exports, which would support prices.
"Whenever the news looks like an agreement is not as imminent as thought, that's going to push the price back up," said Michael Lynch, oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts.
Declining distillate stocks boosted ULSD futures to a high of $2.9595 a gallon, the highest since Nov. 1. The contract settled 4.87 cents higher at $2.9545. U.S. gasoline futures ended up 2.35 cents $2.6630 per gallon.
The crack spread, or refiner's profit margin between a barrel of Brent and ULSD <LCO-HO1=R>, widened by more than 80 cents to settle at $15.96 a barrel, its most since Oct. 23, indicating rich refining margins.
That same spread for U.S. oil <CL-HO1=R> widened by more than $2 to settle at $30.76 a barrel, its widest mark in seven months, as cheap and plentiful U.S. crude oil continues to promote refiners to make the product as demand rises.
A resumption of Libyan supply helped to limit gains. Oil exports from Libya's western Mellitah port have resumed after protests ended, allowing a large oilfield to ramp up production and providing some respite from a crisis that has crippled its economy.
(By Jeanine Prezioso; Additional reporting by Simon Falush and Joshua Franklin in London and Florence Tan in Singapore; Editing by Dale Hudson, Jane Baird, Bob Burgdorfer, Marguerita Choy and Chizu Nomiyama)