LONDON (Reuters) - Brent crude futures slipped below $118 on Wednesday as a stronger dollar and fears about the euro zone weighed on prices, while the prospect of further talks between Iran and the West continued to ease pressure on the market.
The dollar was up 0.4 percent against a basket of currencies on Wednesday, helping to push Brent over $1 lower during the session to a low of $117.60 a barrel.
Worries about the euro zone debt crisis flaring up again persisted on Wednesday, as data showed bad loans at Spanish banks were at their highest level since October 1994. The report underscored the challenges still facing the region's fourth-largest economy.
"Now that we have finished with Greece, the focus is now on Spain. The growth picture is still mixed, with marginally more positive data emerging from the U.S. than the EU," said Thorbjørn Bak Jensen, an oil analyst at Global Risk Management, citing strength in Germany as a sign the outlook for the euro zone was improving.
Brent June crude was down 98 cents at $117.80 a barrel at 1100 GMT, after settling little changed in the previous session. Brent tumbled 2 percent at the start of the week.
May crude shed 2 cents to trade at $104.18, after settling at its highest close since April 2. The May contract expires on Friday.
Fears about the euro zone debt crisis flaring up again eased on Tuesday after a Spanish bill auction was met with strong demand and further signs of growth emerged from Germany.
The IMF offered a cautiously optimistic view on global growth, which it said is slowly improving as the U.S. recovery gains traction and dangers from Europe recede.
"Traders' risk appetite improved after the successful debt auction, IMF increasing global growth forecast and good data from Germany," said Natalie Robertson, an analyst at ANZ.
Brent's premium to crude fell below $14 a barrel as investors continued to price the prospect of further talks between six world powers and Iran and news about a pipeline reversal in the United States.
Iran and six world powers are expected to meet again next month, after negotiators said talks at the weekend over Iran's nuclear program had been constructive.
"The main increase in oil prices between January and April was explained by tension in Iran. Prices are now moving down the same way as talks about setting up a new meeting with Iran are having the opposite effect," Bak Jensen said.
In the U.S. the reversal of the Seaway pipeline is expected to help drain a glut of crude around the Cushing, Oklahoma, oil hub where inventories frequently build up. The reversed flow will instead redirect crude to refineries in Texas.
Investors were also still pricing in news early this week the pipeline's flow may be reversed early as mid-May.
"Crude oil futures continue to be the story of readjusting for the Seaway flows starting at the end of May," said Olivier Jakob of Petromatrix in a note on Wednesday.
"If one considers the cost of pipeline or train transportation there is no clear justification for the LLS (ie Brent)-WTI spread to trade above a 7 $/bbl to 10 $/bbl range," Jakob continued.
Inventories have jumped over 21 million barrels over the past four weeks and the bulk of the stock build was concentrated on the West Coast, a weekly report from industry group the American Petroleum Institute said on Tuesday.
In contrast, there was little change in Gulf Coast inventories, and a drop in supplies on the East Coast the report showed. <API/S>
Additional reporting by Jessica Jaganathan; editing by Jason Neely and Keiron Henderson