Oil retreats as rising U.S. inventories continue to weigh

By Robert Gibbons

NEW YORK (Reuters) - Crude oil futures fell sharply on Thursday as rising inventories in the United States pressured both Brent and U.S. contracts and countered expectations for recovering demand.

While Brent losses were tempered by those expectations for improving global demand and geopolitical concerns about energy supplies from Libya and Russia, U.S. crude losses more than wiped out Wednesday's gains.

Brent April crude fell $1.58, or 2.56 percent, to settle at $60.05 a barrel, off a $62.63 intraday peak. On Wednesday, Brent surged 5 percent.

U.S. April crude fell $2.82, or 5.53 percent, to settle at $48.17, after rallying 3.47 percent on Wednesday.

Brent's premium to U.S. crude on Thursday increased to $12.06, the widest spread since January 2014.

Both crude contracts rallied on Wednesday after Saudi oil minister Ali al-Naimi said demand was growing. Earlier in the week, a Gulf OPEC delegate predicted stronger demand growth in the second half of 2015.

Brent prices collapsed after hitting $115 in June 2014 on global oversupply and OPEC's subsequent decision to defend market share against rival producers rather than cut output.

Brent's recovery from a nearly six-year low of $45.19 in January was sparked by signs that lower prices are starting to reduce investment in production in non-OPEC countries.

"But stopping production growth is not the same as lowering production," said a Texas-based cash crude broker.

Helping limit Brent's losses this week was President Vladimir Putin's warning on Wednesday that Russia would halt natural gas supplies to Ukraine if it did not receive advance payment, raising the possibility of disruptions of deliveries to Europe.

Turmoil in embattled Libya has kept production and exports from the OPEC-member nation uncertain, adding lift to Brent.

"The Brent market is much more reactive to an almost daily dose of geopolitical headlines that are demanding at least some element of risk premium," Jim Ritterbusch, president at Ritterbusch & Associates, said in a research note.

Meanwhile, U.S. crude inventories kept rising, adding another 8.4 million barrels last week, according to government data. [EIA/S]

Refinery capacity use fell last week as refiners do maintenance, helping the deficit of U.S. April to May crude increase to more than $2 a barrel.

The anaemic refinery throughput, cold weather and sliding distillate inventories have supported New York ultra-low sulphur diesel March futures . They rose 3.22 cents to settle at $2.1358 a gallon.

(Additional reporting by Alex Lawler in London and Jane Xie in Singapore; Editing by Mark Potter, David Gregorio and Lisa Von Ahn)