* Dialogue used to resolve Ukraine issues - U.S.' Kerry
* Brent/WTI spread widens after reaching 5-month low
* Brent drops below 200-day moving average
(Rewrites throughout, updates to settlement prices, adds
By Jeanine Prezioso
NEW YORK, March 5 Oil prices slid nearly $2 per
barrel on Wednesday as U.S. government data reflected weaker oil
demand as Europe and the United States head into spring and
refiners move into maintenance season.
Prices also dropped as traders sold off the geopolitical
risk premium accrued on Monday on fears of escalating tension in
Ukraine. Those fears mostly subsided by Wednesday as U.S.
Secretary of State John Kerry said the related parties agreed to
resolve tensions through dialogue.
Stocks of distillates in the U.S., which include heating
oil, rose unexpectedly last week by 1.4 million barrels, data
from the U.S. Energy Information Administration (EIA) showed,
compared with a forecast of a 1.2-million-barrel draw,
indicating slack demand as temperatures are expected to warm.
In the meantime, oil stocks at benchmark delivery point
Cushing, Oklahoma, fell for the fifth straight week, the data
U.S. oil's discount to Brent CL-LCO1=R narrowed to a
five-month low of $5.44 per barrel ahead of the data's release
as traders correctly priced in expectations that it would show a
decline in oil supplies at Cushing.
The spread later widened to settle at $6.31 as traders sold
contracts to cover those bets.
Weaker-than-expected U.S. payrolls data and confirmation by
the U.S. Federal Reserve that severe winter weather across much
of the United States in the last two months led to slower
economic growth also weighed on prices.
"I think that the disappointing economic data kind of set a
negative tone," said Gene McGillian, energy analyst with
Tradition Energy in Stamford, Connecticut. "If it weren't for
the Cushing draw, the build in distillates would have sent us
Brent oil for April delivery settled $1.54 lower at
$107.76. The contract hit $112.39 on Monday, its highest since
Dec. 30, but it had settled below the key 200-day moving average
of $108.41 on Wednesday the first time one month.
U.S. crude for April delivery ended the day $1.88
lower at $101.45.
U.S. oil refiners are expected to increase the amount of
capacity they take offline this week, data from research company
IIR showed on Wednesday, which could further backlog supplies in
the U.S. Gulf Coast and temporarily depress prices.
Losses in Brent were limited by news that China expects its
economy to grow at the same pace in 2014 as it did last year,
potentially boosting oil demand in a country set to overtake the
United States as the world's largest crude importer.
Brent also drew some support from continued unrest in Libya,
where oil output has dropped to around 230,000 barrels per day
from 1.4 million bpd in July as protests have hit oilfields and
In Libya, top officials said on Tuesday they were looking
into the demands of protesters who have blocked the 340,000 bpd
El Sharara oilfield, but a field manager said on Wednesday there
was no sign production was about to resume.
(Additional reporting by David Sheppard and Shadi Bushra in
London, Anna Sussman in New York and Jacob Gronholt-Pedersen in
Singapore; Editing by Jason Neely, Dale Hudson, Peter Galloway,
Bernadette Baum and Marguerita Choy)