U.S. crude closed higher on Wednesday at more than $67 after data showed a surprise tumble in inventories, but a report suggesting Saudi Arabia expected still lower prices for oil sent Brent below $70 a barrel.
The spread between Brent and U.S. crude, a key arbitrage in oil markets, narrowed to below $3 a barrel, its lowest in 1-1/2 months.
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Oil markets have been volatile since Thursday's decision by the Organization of the Petroleum Exporting Countries not to cut production in an oversupplied market. In recent days, traders have sought a price floor for crude, which has tumbled about 40 percent from June highs.
On Wednesday, U.S. crude rose after oil inventories in the United States fell by 3.7 million barrels last week. Analysts were expecting a 1.3 million-barrel build.
Brent closed lower after the Wall Street Journal, citing people familiar with the situation, reported that Saudi Arabia, OPEC's biggest oil producer, believed crude prices could stabilize at around $60 a barrel. Brent had hit a high above $115 in June.
Chart analysts have already warned that U.S. crude could plunge toward $50.
Exxon Mobil Corp Chief Executive Officer Rex Tillerson somewhat added to the debate on how low prices could go when he told CNBC that the company's decision to invest in the U.S. shale oil sector was based on an ability to withstand a price range of $120 to $40.
"Between the Journal report of the Saudis accepting $60 oil and Rex Tillerson saying Exxon can be tested to as low as $40, I guess the market has to decide which low price level it's comfortable with," said John Kilduff, partner at New York energy hedge fund Again Capital.
Brent settled down 62 cents at $69.92 a barrel, after climbing nearly $1 earlier to $71.46.
U.S. crude finished up 50 cents at $67.38 after a session peak at $68.23.
Absent strong economic data, robust demand and geopolitical disturbances, speculators are likely to test new lows for crude in coming days.
"We may get some bullish sentiment or a break when they come in to cover shorts like today," said futures broker Santiago Diaz of INTL FC Stone in Miami, "but otherwise, they'll be selling."
(By Barani Krishnan; Additional reporting by Ahmed Aboulenein and David Sheppard in London and Florence Tan and Jane Xie in Singapore; Editing by Alden Bentley and Lisa Von Ahn)