* Brent's two-day slide hits almost $4 a barrel
* U.S. oil demand down almost 2 pct in Jan-API
* Feb PMIs deal blow to euro zone recovery hopes
* U.S. crude stocks up, gasoline stocks lower-EIA
(New throughout, adds closing prices, quotes)
By David Sheppard and Robert Gibbons
NEW YORK, Feb 21 Brent crude oil fell to a
three-week low below $114 a barrel on Thursday, dropping almost
2 percent as weak economic data added to concerns that the rally
that began at the start of the year may be over done.
The slide took losses for the last two sessions to almost $4
a barrel and marked the biggest, two-day fall since October, as
traders weighed the likelihood of higher supplies from Saudi
Arabia and signs that higher prices may be hurting demand.
The possibility that the Federal Reserve might curb its
economic stimulus measures earlier than previously expected has
also pressured markets. U.S. crude has fallen by more than $4 in
the last two days to below $93 a barrel, while U.S. equities
posted a second day of sharp declines on Thursday.
"Short-term fundamentals simply do not justify sustained
gains past $120," said Andrey Kryuchenkov, an analyst at VTB
Capital in London.
"Brent was overbought amid overwhelming investor interest."
Brent crude for April delivery finished down $2.07
at $113.53 a barrel, after slipping to $113.32 during the
session, Brent's lowest price since Jan. 29.
U.S. crude for April delivery fell $2.38 to settle at
$92.84 a barrel. It dropped below its 50-day moving average, a
key technical support level watched by traders that could now
trigger further selling.
Brent had rallied by $10 a barrel in the first six weeks of
2013 on signs of strong demand from China and lower supplies
from Saudi Arabia, eventually hitting a nine-month high above
$119.17 on Feb. 8.
The move came as hedge funds and other large speculators
roughly doubled their bets on rising oil prices in the past two
months, the latest regulatory and exchange data shows, holding
paper contracts equivalent to about 440 million barrels of oil.
That has left the market vulnerable to rapid corrections if
funds choose to exit their positions, traders and analysts say.
During Wednesday's sell-off, U.S. crude prices lurched
lower late-morning in New York as more than 2 million barrels
worth of oil contracts changed hands in just two seconds, a
Reuters analysis of exchange data showed.
That has left some traders nervous that big sellers are
emerging in the market after reports that Saudi Arabia, the
world's largest crude exporter, expects to raise output in the
Oil prices took some support from increased tensions with
Iran, after the U.N. nuclear watchdog said the Islamic Republic
has begun installing advanced centrifuges at its main uranium
The United States warned Iran it faces further pressure and
isolation if it fails to address international concerns about
its nuclear program in talks with world powers next week. Iran's
oil exports have fallen sharply in the face of U.S. and European
sanctions in the past year.
US OIL INVENTORIES, ECONOMIC DATA
The U.S. Energy Information Administration's weekly
inventory report showed crude stockpiles rose by more than
expected last week to stand at the highest level since last
Gasoline prices took some support, however, after the EIA
reported the biggest weekly decline in inventories of the fuel
since May 2012 amid widespread refinery maintenance in the
The American Petroleum Institute said U.S. oil demand had
fallen by almost 2 percent in January from a year earlier.
"This isn't surprising given an economy that's still
treading water," API chief economist John Felmy said.
Oil, equities and the euro were further pressured on
Thursday as surveys showed that a downturn in the euro zone's
businesses worsened unexpectedly in February.
Economists had expected that the euro zone purchasing
managers' indexes (PMIs) would support tentative signs a
recovery was under way, but instead they pointed to a
first-quarter contraction of up to 0.3 percent.
Adding to the cautious outlook for the global economy, the
U.S. Labor Department said on Thursday initial jobless claims
increased and the Philadelphia Federal Reserve's business
activity index fell in February for a second month.
(Reporting by David Shepaprd and Robert Gibbons in New York,
Alex Lawler in London and Florence Tan in Singapore; Editing by
Bernadette Baum and Leslie Gevirtz)