Oil slips to near $101 amid mixed U.S. demand signs

Oil prices slipped closer to $101 a barrel Wednesday after a crude supply report showed mixed signs about U.S. demand and as markets awaited news on a plan to resolve the European debt crisis.

By early afternoon in Europe, benchmark crude for January delivery was down 18 cents to $101.10 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 29 cents to settle at $101.28 on Tuesday.

In London, Brent crude was down 9 cents at $111.72 on the ICE Futures exchange.

The American Petroleum Institute said late Tuesday that crude inventories fell 5.0 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 1.3 million barrels.

However, inventories of gasoline rose 6.0 million barrels last week while distillates added 1.7 million barrels, the API said.

The Energy Department's Energy Information Administration reports its weekly supply — the market benchmark — later Wednesday.

Oil has bobbed near $100 for the last three weeks after jumping from $75 in October as signs of an improving U.S. economy offset investor fears of a coming recession in Europe.

"Money is always looking for ways to make more money," said a report from energy consultant and trader Blue Ocean Brokerage in New York. "We've pretty much ruled out Europe for the next six months and the best-looking ugly girl left to dance is the U.S."

Markets' attention is also focused on Friday's summit of European leaders, where it is hoped they can agree on a plan to resolve the debt crisis.

"By Friday afternoon, we should either be in free fall in the euro, equities and commodities — or they should all be exploding higher," said analysts at U.S. energy consultancy Cameron Hanover. "Friday afternoon could be a period of manic trading ... if it takes until then for a decision to be taken."

Traders are also closely watching whether possible sanctions imposed by Europe and the U.S. on Iran related to its nuclear energy program will pinch global crude supplies.

"European leaders are also tussling with a decision to embargo Iranian oil imports," Cameron Hanover said. "It would hurt Europe as much as it would hurt Iran, and that makes it an especially difficult decision to make right now."

An embargo against Iran would hit some of the countries already deeply affected by the debt crisis — Italy, Spain and Greece — especially hard.

"An embargo would force them to source their oil requirements elsewhere at considerably higher prices," said a report from Commerzbank in Frankfurt.

In other Nymex trading, natural gas lost 1.4 cents to $3.473 per 1,000 cubic feet. Heating oil gained 0.64 cent to $3.0281 a gallon and gasoline futures dropped 1.28 cents to $2.6326 a gallon.