LONDON: Oil prices reversed gains on Thursday after a smaller-than-expected decline in US jobless claims dampened hopes for growth in the world's top oil consumer, offsetting sharp dollar falls. The number of Americans filing new claims for unemployment benefits fell last week but held above the key 400,000 level, hinting at some loss of momentum in the labor market recovery. ICE Brent crude futures for June fell 33 cents to $123.52 a barrel by 1354 GMT after earlier rising nearly $1. The US oil benchmark was down 16 cents at $111.29 a barrel by the same time. Earlier, both benchmarks were boosted by a slide in the dollar index to a three-year low, making dollar-denominated crude less expensive for buyers using other currencies and prompting financial investors to shift funds into commodities. "(US) crude has rallied from $105 to above $112 during the week, and above $110 you run into stronger resistance and concerns about high prices hurting demand. And the jobs claims fell, but are still above 400,000," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. Oil is trading within a few dollars of the 32-month high of $127 a barrel, a level which representatives of consumer countries have said are already high enough to dent fuel use. International Energy Agency's executive director Nobuo Tanaka said on Wednesday demand was already suffering and that OPEC needs to raise output around June to stem further price rises. But Ecuador's oil minister said OPEC had no plans for an emergency meeting because the market was well supplied despite unrest in Libya. Risk premium Oil prices are still holding a hefty risk premium due to heavy fighting in OPEC member Libya where government troops are pounding the rebel-held city of Misrata, with investors concerned about a spread in supply disruptions to other parts of the Middle East. Libya was Africa's third-largest producer, pumping around 1.6 million barrels per day of crude, before fighting between Muammar Gaddafi's forces and rebel troops slashed output. "The Libyan unrest is lasting longer than expected and creating a shortage of light, sweet oil. What refiners are likely to do is replace this with more sour crude," said Christophe Barret, analyst at Credit Agricole. The main opposition group in Bahrain — neighbor to top oil producer Saudi Arabia —warned on Wednesday that angry youths from the Shia majority could "explode" if the Sunni-led Gulf Arab kingdom did not end a crackdown that has purged Shia from state jobs. US crude and product inventories fell in the previous session, in a move that analysts said might suggest oil prices have not yet climbed high enough to significantly dent consumption. US stocks of the motor fuel gasoline fell 1.58 million barrels for the ninth straight week and distillate stocks also fell 2.5 million barrels, in signs that demand is fairly robust. US crude stocks fell unexpectedly by 2.32 million barrels in the week to April 15, the report showed, compared with expectations for a 1.1 million barrel build in a Reuters poll of analysts. –Additional reporting by Francis Kan in Singapore and Robert Gibbons in New York
