Oil prices fell to around $72 a barrel on Thursday after rising more than 5 percent this week as swollen U.S. distillate stocks such as diesel offset positive sentiment in other markets.
U.S. crude was down 30 cents at $72.21 a barrel by 1300 GMT, after falling as low as $71.87 earlier.
London Brent Futures were down 28 cents at $71.39 a barrel.
European equity markets rallied in early trade and the FTSEurofirst 300 <.FTEU3> held above the 1,000 mark, while gold touched new 18-month highs, adding to signs that investors were ready to take on more risk.
But analysts said weak fundamentals neutralized the potentially bullish news from other markets as traders eyed brimming distillate stocks which could limit any price gains during the peak demand heating season.
U.S. Energy Information Administration data showed distillates rose by 2.2 million barrels last week, far exceeding analyst expectations for a 1.3 million barrel build.
And while crude stocks fell by more than expected last week, analysts said this was because of higher refinery utilization rates rather than a genuine pick-up in demand.
We see no current physical tightness or even an imminent shift to a supply/demand deficit to help push the market higher, said Citi analyst Timothy Evans in a research note, adding, Some of the barrels have simply been moved downstream.
Gasoline stocks rose by 500,000 barrels in the same period.
Weakness in the dollar helped limit oil losses on Thursday as it hit a new 2009 low against the euro on Thursday as investors shifted money to riskier assets such as equities.
Oil prices tend to rise when the dollar falls because a weak dollar can make it cheaper to buy oil and other dollar-denominated commodities.
We should remember that there is a big loss of confidence in the dollar and that will lend some support to oil, said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo.
Oil has moved in tandem with equity markets this year and these have helped tow prices up from around $32 a barrel last December.
U.S. stock index futures suggested Wall Street would likely open little changed, following U.S. housing and jobs data.
New U.S. housing starts and permits rose in August to their highest level since November, a government report showed.
The number of U.S. workers filing new claims for jobless benefits unexpectedly fell by 12,000 last week.
(Additional reporting by Sambit Mohanty; editing by James Jukwey)