U.S. Crude Tumbles on Surprise Build

U.S. crude oil futures tumbled on Wednesday as a higher-than-expected build in inventories weighed down prices, while unrest in Libya propped up Brent.

U.S. Energy Information Administration (EIA) data showed U.S. crude stocks rose for a 10th straight week to 391 million barrels, their highest for this time of year since records began in 1982.

The 3 million-barrel build in crude stocks briefly lifted U.S. crude, or West Texas Intermediate (WTI), as it followed Tuesday's data from industry group the American Petroleum Institute showing an even steeper build of 6.9 million barrels last week.

Analysts had expected an increase of 600,000 barrels.

U.S. crude swiftly resumed its downward trend, falling by nearly $2 to a low of $91.77 during the session.

Brent traded lower throughout the session but rallied before the close as traders and investors shored up positions in the risk-sensitive benchmark ahead of the U.S. Thanksgiving Day holiday on Thursday.

"Obviously the geopolitical risk for oil is going to be in the Brent contract...Nobody wants to be exposed to the short end without having access to the market" during the holiday, said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.

Brent crude rose 43 cents to settle at $111.31 a barrel, after trading as low as $110.51 during the session.

U.S. oil closed down by $1.38 at $92.30, its lowest close since May 31, after dipping to $91.77 earlier in the session.

Oil trading on the New York Mercantile Exchange will shut at 1:30 p.m. EST (1830 GMT), one hour earlier than normal, on Friday, Nov. 29, the day after the Thanksgiving Day holiday.

Brent's continued outperformance of WTI widened the spread between the two benchmarks <CL-LCO1=R> to an eight-month high of $19.41. The spread closed at $19.01, its widest at settlement since March 7 and nearly $2 wider than its Tuesday close of $17.20.

U.S. distillates inventories fell last week to their lowest level for November since records began in 1982, as export of refined products reached a historic peak, data from the U.S. EIA showed on Wednesday.

Phil Flynn, an analyst at Price Futures Group in Chicago, said the export phenomenon meant refiners are storing distillates at levels closer to domestic needs.

"We're really seeing a changing dynamic in the market ... We're now an exporter and we have this reliable supply of oil, so the tendency is not to carry as much," he said. "It goes directly from refiner to user."

Brent crude gained support from disruptions in Libya, where protests at oil ports have reduced oil flows from the OPEC member to 20 percent of previous levels, according to Libyan Prime Minister Ali Zeidan.

Zeidan said his government will be unable to pay public salaries and might have to seek loans if armed militias blockading oilfields and ports keep choking off crude shipments.

Zeidan's warning and renewed armed clashes, including an attack on a centuries-old shrine near Tripoli, have added to a growing sense of chaos in the OPEC producer two years after the NATO-backed ouster of Muammar Gaddafi.

"I don't expect the situation in Libya to improve anytime soon," Fritsch said. "Because of the sectarian and decentralized protests, there's no way to find a common solution."

(By Anna Louie Sussman; Additional reporting by Joshua Franklin in London, Manash Goswami in Singapore; Editing by Christopher Johnson, Jane Baird, Andrew Hay, Andre Grenon and David Gregorio)