(Reuters) - Oil fell on Wednesday as signs of a looming deal between Iran and the U.N. nuclear watchdog eased fears of a supply disruption, while the euro zone debt crisis and a slowing Chinese economy raised worries over demand.
A U.S. Energy Information Administration (EIA) weekly report showing U.S. crude inventories, excluding Strategic Petroleum Reserves, logged the biggest nine-week build on record also helped depress prices.
World powers began talks with Iran on Wednesday to test its readiness under pressure of sanctions to scale back its nuclear program, seeking to ease a decade-old standoff.
The U.N.'s International Atomic Energy Agency expects to sign a deal with Iran soon to unblock investigations of its nuclear program, which Tehran says is for peaceful purposes.
Brent crude fell $2.49 per barrel to a low of $105.92, its lowest since December, before recovering a little to trade around $106.50 by 1510 GMT. U.S. crude futures fell $1.67 to a low of $90.18.
Brent oil has fallen from a peak of $128.40 at the start of March and is down 13.5 percent this quarter, its biggest drop since the fourth quarter of 2008.
Analysts argue there may be scope for fresh weakness.
The Iranians seem to be softening their position and that could lead to an easing of sanctions, said Christopher Bellew at Jefferies Bache.
If that were to happen, oil might fall below $100 while Saudi Arabia decides whether to cut production.
Saudi Arabia is the world's largest exporter and favors an oil price of around $100
Economic concerns also weighed on oil as the World Bank cut its economic growth forecast for China, the world's second-largest oil consumer.
Nagging fears of a messy Greek exit from the euro zone also remained ahead of a Wednesday meeting of European leaders.
The fears helped push the dollar to a 20-month high against a basket of currencies, making oil priced in other currencies less affordable.
The selling will stop when the market is convinced that the uncertainty surrounding Greece and the rest of the sovereign debt issues in Europe are truly over and the macroeconomic data starts to improve, said Dominick Chirichella of New York's Energy Management Institute.
U.S. crude inventories rose for the ninth straight week last week as stockpiles at the Cushing, Oklahoma oil hub shot to a fresh record high, data from the EIA showed on Wednesday.
Gasoline inventories tumbled by 3.3 million barrels in the week to May 18, well above analysts' expectations for a 500,000 barrel draw, the EIA report showed.
Crude oil stocks rose by 883,000 barrels in the week, compared with analysts' average forecast for a 1 million barrel gain. Crude stocks at the NYMEX Cushing hub extended its record high, rising 1.67 million barrels to 46.8 million barrels.
Crude stocks were expected to have risen 1.0 million barrels last week, a Reuters survey of analysts showed.
(Additional reporting and writing by Christopher Johnson; editing by Keiron Henderson)