Oil shed today some of the previous session's 4 per cent gains but held above $39, after President Obama balanced his message of hope for the US economy with a warning and ahead of data on US oil stocks.
Obama told Congress the United States would emerge stronger from its deepest economic slump in decades but said America faced a "day of reckoning" for its past excesses.
The president's address came after Fed Chief Ben Bernanke signalled on Tuesday that US banks should be able to weather the downturn without being nationalised, prompting a Wall Street rally from 12-year lows.
US light crude for April delivery fell 36 cents to $39.60 a barrel by 6.05am, after rising to a two-week high of $40.13 the previous session. London Brent crude slipped 50 cents to $42.00 a barrel at the same time.
"Yesterday's lift was linked to an improvement in equities that had a positive effect on sentiment," said David Moore, commodity strategist at Commonwealth Bank of Australia.
"But you've still got a situation where concerns about the international economy dominate and with that concerns about consumption," he added.
Asian stocks outside Japan rose 1 per cent and Japan's Nikkei gained 2.5 per cent today on Bernanke's remarks, which eased some concerns that the largest US banks may need to be taken over because of huge hits to their balance sheets from the credit crisis.
Uncertainty about the future of the US banking system has raised concerns that the economic crisis could worsen, darkening an already gloomy outlook for US energy demand.
Also supporting oil were figures showing higher-than-expected compliance by the Organization of Petroleum Exporting Countries to agreed production cuts.
Traders were looking ahead to March 15th, the date of OPEC's next meeting in Vienna where its members are expected to consider deepening their output cuts.
The US Energy Information Administration will issue its own inventory data today 3.30pm, and is expected to show that crude stocks probably rose 1.4 million barrels last week. Figures from the American Petroleum Institute showed US crude stocks rose a fewer-than-expected 341,000 barrels last week.
Oil traders consider the API report to be less credible than the US EIA data, which requires energy companies to respond to their weekly survey.
Reuters