Brent crude fell for a second day on Thursday, shedding as much as 0.4 percent toward $115, after the resignation of Portugal's prime minister rekindled euro-zone concerns, prompting oil traders to unwind long positions and take profits.
Still, the market was vulnerable to spikes as attention remained focused on turmoil across the Middle East and North Africa, which together with a larger-than-expected drop in U.S. gasoline inventories last week, drove WTI crude to its highest settlement since 2008 on Wednesday.
May Brent fell as much as 49 cents to $115.06 a barrel and was down 15 cents at $115.40 at 0729 GMT (3:29 a.m. ET). U.S. benchmark West Texas Intermediate declined 22 cents to
The market today is taking a breather, with traders still in the sidelines trying to evaluate what is going to happen next in North Africa and the Middle East, said Serene Lim, a Singapore-based oil analyst at ANZ Bank.
Whether there will be a bailout for Portugal or not has some consequences on how things will pan out in Europe. Risks in the euro-zone seem to be increasing.
Portuguese Prime Minister Jose Socrates resigned on Wednesday and warned of grave consequences for the country after parliament rejected his government's latest austerity measures aimed at avoiding a bailout.
The resignation was seen as increasing the likelihood that Portugal will join Greece and Ireland in requiring a bailout from the European Union, putting the euro under pressure. The dollar <.DXY> strengthened by 0.3 percent against a basket of currencies.
Oil prices also came under pressure from lackluster home sales data out of top oil consumer the United States.
U.S. new home sales sank to a record low in February and prices were the weakest in just over seven years, underscoring the housing market's lingering malaise, which could slow the economic recovery and hit energy demand.
But simmering tensions across the Middle East kept a floor under prices, as Western warplanes hit Libya for a fifth night. The U.N.-backed assault has so far failed to stop Muammar Gaddafi's tanks shelling rebel-held towns or dislodge his armor from a strategic junction in the east.
On a broad basis, the market seems to be still in an upward trend, Lim said. The risk is still very much to the upside.
Palestinian rockets struck two cities deep in Israel on Wednesday, prompting Prime Minister Benjamin Netanyahu to threaten lengthy exchanges of blows with the Hamas-ruled Gaza Strip.
Syrian forces killed six people in an attack on protesters in a mosque complex in the southern city of Deraa, and later opened fire on hundreds of youths marching in solidarity, witnesses said.
In the Arabian peninsula, Yemen's president offered to step down by the end of the year in a bid to appease mounting demands for his resignation, but opposition groups showed no sign of easing up on efforts to force him out.
U.S. trading activity in crude was 45 percent below the 30 day average on Wednesday, the sixth day in a row it has traded below that level.
U.S. crude on Wednesday was boosted by data from the Energy Information Administration which confirmed a late Tuesday report from the American Petroleum Institute showing a steep drop in gasoline inventories for the week to March 18.
Gasoline stockpiles in the first three weeks of March have shown the steepest decline for the period on records stretching back to 1990, as refiners shed stockpiles of winter grade gasoline ahead of the shift to summer grades.
(Editing by Himani Sarkar)