Brent crude jumped to a 2-1/2 year peak above $122 a barrel on Tuesday, gaining for a fourth straight day as conflict and unrest in Africa and the Middle East more than offset China's latest interest rate hike.
U.S. crude futures slipped in choppy trading ahead of weekly inventory reports, hemmed in by the prospect that the reports would show crude stocks rose again last week and more supply arrived at the Cushing, Oklahoma, delivery hub.
Oil and copper slumped early on the threat to demand from another Chinese interest rate hike, the fourth since October. China's move, designed to rein in inflation, also pressured Wall Street, which rose for most of the session ending near flat after ate choppy trading.
Brent crude's premium to U.S. benchmark West Texas Intermediate crude increased to more than $14 intraday for the first time since March 3, but remained below a record $17.12 a barrel reached on March 1.
Brent crude for May rose $1.16 to settle at $122.22 a barrel after reaching $122.89, the highest front-month price since August 2008.
U.S. May crude fell 13 cents to settle at $108.34, unable to reach Monday's $108.78 intraday peak, which was the highest since September 2008.
WTI is sputtering a bit ahead of inventory data. But Brent continues to march higher on Middle East/Africa supply outages and concerns, said Tom Bentz, a broker at BNP Paribas Commodities Futures Inc in New York.
U.S. OIL INVENTORIES
U.S. crude stocks fell 2.8 million barrels in the week to April 1, with stocks at the Cushing delivery point rising 122,000 barrels, the industry group the American Petroleum Institute said in a report released late on Tuesday.
Gasoline stocks rose 568,000 barrels and total distillate stocks fell 1.0 million barrels, the API report said.
Brent and U.S. crude prices were little changed after the report.
Ahead of the API report, an expanded analyst survey on Tuesday expected crude stocks to have risen 1.7 million barrels last week.
Gasoline stocks were expected to be lower by 1.9 million barrels and distillates were seen posting a small 200,000-barrel decline.
The U.S. Energy Information Administration's inventory report will be released at 10:30 a.m. EDT on Wednesday morning.
THIN U.S. TRADING VOLUMES
U.S. trading volumes were below 30-day and 250-day averages, according to Reuters preliminary data. While Brent volumes were just above the averages, they also were higher than the U.S. trading volume.
This rally is suspect because of the low volumes. There is an old saying that one should avoid being long a thin rally, said Michael Fitzpatrick, editor of the Energy Overview industry newsletter of the Kilduff Group in New York.
Trading volumes for U.S. crude posted their lowest weekly totals for the year in the past two weeks.
LIBYA, MIDDLE EAST, SUPPLY CONCERNS
The back-and-forth fight for control of the Libyan oil town of Brega reinforced the prospect that a stalemate will prolong the loss of the country's 1.3 million barrels per day of exports.
The geopolitical problems are closer to Europe and Nigeria's election delay and Forties cargoes delays are all hitting sweet crude supply, said Andrew Lebow, broker at MF Global in New York.
Brent prices were lifted on Monday by news of delays for several April cargoes of Forties crude -- which typically sets the level of dated Brent benchmark -- due to a brief drop in North Sea Buzzard oilfield production last week.
Worry that Chinese demand would be limited by efforts at curbing inflation could not offset the Libyan conflict and unrest in Saudi Arabia's neighbor Yemen as well as anger in Nigeria over delayed elections.
(Additional reporting by Gene Ramos in New York, Jessica Donati in London and Seng Li Peng and Simon Webb in Singapore; Editing by Alden Bentley, David Gregorio and Jeffrey Benkoe)