Oil falls below US$97 amid mixed signs on US crude demand strength

Oil prices fell below $97 a barrel Thursday amid mixed signs about the strength of crude demand in the U.S., the world's largest economy.

The benchmark crude for March delivery was down 83 cents to US$96.78 a barrel on the New York Mercantile Exchange. The contract fell 87 cents to settle at $97.61 on Wednesday.

A jump of U.S. crude inventories last week by 4 million barrels suggested oil consumption is sluggish. However, factories raised output in January by the most in seven months, the Institute for Supply Management said Wednesday while the Commerce Department said construction spending rose 1.5 per cent in December, the fifth straight monthly gain.

Analysts noted the divergence between Nymex and Brent, with the American contract falling because of rising inventories and the European contract boosted by uncertainty over sanctions and the diplomatic standoff with Iran, as well as the 10-month uprising against the regime in Syria.

"It is becoming clear that there are no supply shortages at the moment and that the price of Brent is mainly being supported by a risk premium," said a report from analysts at Commerzbank in Frankfurt.

Oil prices have hovered near $100 for the last few months amid mixed economic signs from the U.S., Europe and Asia. Some analysts expect crude to begin to rise as the global economy may grow more this year than previously expected.

"The crude oil price has become stuck in a remarkably extended period of narrow sideways trading," Barclays Capital said in a report. "However, the market is now likely to start to position for an upside break based on a greater degree of relaxation about macroeconomic prospects."