January 8, 2014 / 5:33 AM / 4 years ago

UPDATE 9-U.S. oil loses $1 on Cushing build, Libya supports

4 Min Read

* Libya says will sue companies that buy oil from protesters

* EIA reports build at Cushing, sharp rise in gasoline stocks

* U.S. dollar index at highest level since late November (Adds analyst comments, settlement prices, other details)

By Elizabeth Dilts and Jeanine Prezioso

NEW YORK, Jan 8 (Reuters) - U.S. oil fell by more than $1 on Wednesday, settling at its lowest point in six weeks, after government data showed a large build in crude stockpiles at the U.S. benchmark delivery point.

Brent crude erased early gains and also settled lower, but its losses were limited by continued concerns over Libya's oil supply. U.S. crude's sharper losses boosted Brent's premium over the domestic benchmark to a fresh one-month high of close to $15 a barrel.

The U.S. stock builds come just ahead of refiners entering maintenance season, which will cut in to demand for crude, said Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania.

"It's a combination of more supply coming into the market with weak demand and that is indeed weighing on prices," he said.

Crude stockpiles at the U.S. oil futures contract delivery point in Cushing, Oklahoma, rose by more than a million barrels, data from the U.S. Energy Information Administration showed on Wednesday.

Meanwhile, gasoline and diesel stocks rose sharply as refiners continued to process the fuels at a breakneck pace.

Brent crude settled down 20 cents at $107.15. U.S crude ended $1.34 lower at $92.33 a barrel. U.S. oil has ended lower six out of the last seven sessions as growing supplies upend the market.

Some traders said the U.S. Federal Reserve meeting minutes released late on Wednesday fueled selling as the agency outlined a cautious winding down of its commodity-friendly stimulus program.

The market will look toward Friday's U.S. nonfarm payrolls data to determine the pace of U.S. economic recovery which could further hint at the Fed's schedule on rolling back its bond-buying program.

Others disagreed.

"Crude oil has bigger problems than the Fed," said Walter Zimmermann, a technical analyst at United Icap. "I think it's best described not by Fed minutes but by the persistent and continuing growth of crude oil production."

Rising domestic production and geopolitical stress on Brent pushed the spread between the two benchmarks wider. Brent's premium over U.S. oil stretched to $14.91 per barrel, shrinking by day's end CL-LCO1=R to $14.82.

A tighter Brent market and well-supplied U.S. market also reflected in commodity index rebalancing which supported Brent and pushed U.S. crude lower. Some $3 billion will be allocated to Brent while U.S. crude will lose about the same amount as the Standard & Poor's Goldman Sachs Commodity Index and the Dow Jones-UBS Commodity Index reset investment allocations.

A stronger U.S. dollar also weighed on crude prices as the U.S. dollar index, a measure of the dollar's strength against a basket of currencies, rose to the highest level since late November. When the dollar strengthens, commodities priced in the greenback become more expensive to holders of other currencies.

Brent has been underpinned by tensions in Libya, where civil unrest over the last seven months has cut oil exports to around 510,000 barrels per day (bpd) from more than 1 million bpd in July.

On Wednesday the Libyan oil minister said the country would sue and stop doing business with any foreign companies that buy oil from ports seized by protesters, after those protesters offered oil at $90 a barrel.

Libyan Prime Minister Ali Zeidan warned that its navy could sink oil tankers that approach eastern ports controlled by armed protesters led by tribal leader and 2011 civil war hero Ibrahim Jathran. (Additional reporting by David Sheppard in London, Anna Louie Sussman in New York and Jacob Gronholt-Pedersen in Singapore; editing by William Hardy, Chris Reese, Meredith Mazzilli and Matthew Lewis)

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