July 30, 2014 / 5:16 AM / 3 years ago

UPDATE 9-Oil prices tumble on ample supply, weak demand

* U.S crude stocks down 3.7 mln barrels, Cushing down - EIA

* Fed further reduces bond-buying, still concerned about labor markets (Updates prices to settlement, adds Brent-WTI spread)

By Lorenzo Ligato

NEW YORK, July 30 (Reuters) - Oil prices tumbled on Wednesday, with Brent leading the decline weakened by excess supplies in Europe and Asia while U.S. crude followed suit despite a larger-than-expected drop in nationwide stockpiles.

A weekly report released on Wednesday by the U.S. Energy Information Administration showed crude inventories fell by 3.7 million barrels last week, while gasoline and distillate stocks rose.

The bigger-than-expected draw in U.S. crude stocks prompted a short rally in mid-morning trading, but both Brent and U.S. crude soon turned negative as concerns lingered about weak demand, excess supplies and mixed economic signals both in the United States and worldwide.

"I'm a little surprised the market hasn't reacted more strongly [to the EIA data]," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. "The market's showing signs of exhaustion, though, and it's waiting for a strong driver to weigh in."

Brent crude fell $1.21 to settle at $106.51 a barrel.

U.S. crude slipped 70 cents to settle at $100.27 a barrel, after hitting a low of $99.90.

The spread CL-LCO1=R between the two benchmarks closed at $6.24.

Oil got a small lift from the conclusion of a two-day Federal Reserve policy meeting at which the central bank upgraded its assessment of the U.S. economy but reaffirmed that it is in no rush to raise interest rates.

The weekly EIA report showed that inventories at the Cushing, Oklahoma, delivery point for the U.S. crude contract fell by 924,000 barrels to 17.9 million barrels, their lowest level in six years.

BRENT PRESSURED BY OVERSUPPLY WORRIES

Brent led the decline in early morning trading, as fears of political tension in key regions were offset by ample supplies.

Traders said North Sea and West African physical crude markets were oversupplied, with sellers discounting heavily in an effort to attract buyers such as oil refiners.

The crisis between Russia and the West continued to keep the market on edge after the European Union and the United States imposed further sanctions against Moscow on Tuesday for its support of pro-Moscow rebels in Ukraine.

However, analysts remained dubious on whether the new economic sanctions on Moscow would have any immediate impact on Russian oil exports.

"There is very little chance of Russia responding to the West's sanctions by curbing its oil shipments," Carsten Fritsch, senior oil analyst at Commerzbank, said in a note to traders. "The country is too heavily reliant on the revenues generated by the oil export business."

However, market watchers expressed growing concerns that the sanctions on Russia might take a toll on demand, putting further pressure on oil prices, analysts said.

Traders continued to keep an eye on the continuing fighting in Israel, Iraq and Libya, though there has not been any major oil disruption so far. (Additional reporting by Anna Louie Sussman in New York, Rowena Caine in London and Theodora D'Cruz and Florence Tan in Singapore; Editing by Christopher Johnson, Jane Baird, Jonathan Oatis, Diane Craft and Chris Reese)

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