Brent steadies at $120

Steadying: Brent held at $120 after posting steep losses the previous session

Brent crude held at $120 on Wednesday, after posting steep losses in the previous session, as a cut in global oil consumption forecast by the EIA and an unexpected surge in US crude stocks reinforced fears demand growth may slow.

The cut by the US Energy Information Administration (EIA) followed weak economic numbers from the two top oil consumers - China and the US - suggesting the global economy may be in more trouble than it appeared. These factors overshadowed concerns of supply disruption from the Middle East.

Brent traded 15 cents higher at $120.03 a barrel early on Wednesday, after settling $2.79 lower at its weakest since 17 February. The 2.27% slide was the biggest one-day percentage loss since 14 December. US oil slipped 10 cents to $100.92 a barrel, after settling down $1.44 at $101.02, the lowest since 14 February and below its 100-day moving average of $101.65.

"The broader markets, including oil, are on risk-off mode at this point because of the series of negative numbers we have seen recently," said Natalie Robertson, an analyst at ANZ. "Oil markets would be flat to lower over the next few days, with support coming in if there are worries on the supply side."

Asian shares fell for a third day, while the dollar declined to a five-week low against the yen and the euro inched lower due to the uncertainty surrounding global growth. Shanghai copper fell more than 2% to three-month lows, tracking sharp losses in London.

Oil is also under pressure after the American Petroleum Institute (API) showed crude stocks rose 6.6 million barrels, three-fold more than a forecast of 2.1 million barrels in a poll by Reuters. This week's crude-stocks rise followed the largest two-week build in the past 11 years reported by the EIA last week.

"While it is not unusual to see a build in crude stocks at this point because demand usually falls with many refineries doing maintenance, it is still weighing on sentiment," Robertson said.

Brent could fall further to $117.80 per barrel, as indicated by its wave pattern and a Fibonacci projection analysis, while US oil is expected to clear a support at $100.81 per barrel and fall more to $99.37, according to Reuters technical analyst Wang Tao.

Oil is also under pressure as concerns about European debt have resurfaced as investors worry Spain could become the next source of contagion in the euro zone due to its weak fiscal position. Spain's banks may need more capital if the economy deteriorates, the head of the central bank said.

The EIA forecast global oil consumption to average 88.81 million barrels per day in 2012, compared with last month's projection of 88.96 million bpd.

The EIA expects oil markets to weaken this year as a result, even though exports from Iran fall as the US and Europe tighten sanctions on the Islamic Republic to force it to abandon its nuclear programme.

Iran's oil production may fall 15% this year due to reduced foreign investment, it said.

Iran has agreed to renew discussions with the permanent members of the UN Security Council - the US, Russia, China, Britain and France - plus Germany last month, more than a year after previous talks failed. The next round would be in Baghdad following this week's negotiations in Istanbul.

Even before the talks begin, Iran said it cut oil exports to Spain and may halt sales to Germany and Italy, according to its English-language state television. The announcement may have been aimed at strengthening its position ahead of the talks.

But, in an indication that Tehran's "counter-sanctions" were of little impact, Spain's biggest refiner said it had already replaced Iranian crude with Saudi Arabian oil months ago.

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