NEW YORK (Reuters) - Brent crude pared gains on Thursday as revived hopes for more stimulus from the U.S. Federal Reserve faded and doubts about Europe's ability to address its debt crisis crept back in focus.
Brent prices turned lower before settling 10 cents higher, and ended post-settlement trading in the red. U.S. crude prices retreated more than 1 percent and settled below the 200-day moving average after jumping to their highest since May.
"The market was looking exhausted at these higher levels after rallying for almost two months," said Michael Korn, energy broker at Skokie Energy in Princeton, New Jersey.
"It's too early to say if the rally is over, but with the equity market pulling back today on signs another round of quantitative easing might not be imminent, it's not surprising to see crude oil falling back as well," Korn added.
Oil's rally the last two sessions was sparked after investor hopes for more Fed stimulus were reinforced when minutes from the latest policy meeting, released on Wednesday, suggested the central bank would be likely to act, "fairly soon" unless the economy improves considerably.
But St. Louis Fed President James Bullard on Thursday dampened expectations for more easing with comments that the minutes were "a bit stale" and data had improved since then.
The euro pared gains against the dollar due to tough talk from the Dutch finance minister and German Chancellor Angela Merkel on staying firm about requiring austerity in order for debt-stricken Greece to get bailout funds.
A weaker dollar is usually supportive to dollar-denominated oil prices.
Brent October crude rose 10 cents to settle at $115.01 a barrel, having swung from $114.43 to $116.38.
An upcoming maintenance-related slide in North Sea oil production and heightened Middle East tensions helped Brent hit a three-month peak at $117.03 a week ago as its September contract headed to expiration and went off the board at $116.90 a barrel, the highest settlement since May 2.
Brent has recovered from a low of $88.49 posted on June 22 after retreating from the 2012 peak at $128.40 hit on March 1.
U.S. October crude fell 99 cents to settle at $96.27 a barrel, after reaching $98.29, the highest since prices reached $102.72 on May 4.
U.S. crude has recovered after sliding below $78 a barrel in late June.
While total Brent trading volume outpaced U.S. crude dealings, their turnover lagged 30-day averages.
U.S. stocks pulled back on the diminished expectations for stimulus and weak Chinese and euro zone economic data that had been shrugged off earlier, or interpreted as disappointing data reinforcing the need for more stimulus from central banks.
Disappointing data from China signaled that the slowdown in the world's biggest energy consumer and No. 2 oil consumer had extended into the third quarter.
A rise in new jobless benefit claims in the United States last week and sluggish factory sector data added to concerns about lackluster economic growth.
A flare-up of tropical storms in the Atlantic, with the potential threat to the U.S. oil infrastructure in the Gulf of Mexico, was not enough to keep U.S. crude moving higher, but helped gasoline and heating oil futures post higher settlements.
Gasoline's session peak of $3.1503 a gallon was the highest price since the April 30 intraday high of $3.2103.
The violent struggle in Syria and tensions over the dispute over Iran's nuclear program continued to raise the specter of potential supply disruptions in the region.
The U.S. Navy is cutting short home leave for the crew of one of the aircraft carrier USS Stennis and sending them back to the Middle East next week to counter any threat from Iran, according to the official Navy News Service.
The chief of the U.N.'s International Atomic Energy Agency on Wednesday played down the chances of a breakthrough when talks with Iran resume on Friday.
Additional reporting by Janet McGurty in New York, Claire Milhench and David Sheppard in London and Ramya Venugopal in Singapore; Editing by Marguerita Choy, David Gregorio and Phil Berlowitz