Oil dips towards $105 as supply concerns ease

Oil slipped on Thursday from a two-week high above $106 a barrel after Egypt's armed forces toppled its president, easing concerns over the threat of supply disruption in the Middle East.

The risk that turmoil in Egypt could destabilise the Middle East as well as a tightening in the U.S. oil market had sent prices higher this week. But the Suez Canal, a vital waterway for oil shipments, was not affected by the unrest.

"It is too early to say that the situation has calmed down, but the safe operation of the Suez, which is in the interest of both Persian Gulf countries and oil-consuming nations, seems to be guaranteed," Tamas Varga, an analyst at oil brokers PVM, said.

Brent crude fell 50 cents to $105.26 a barrel by 0850 GMT, after rising as high as $106.03 on Wednesday. U.S. crude slipped 37 cents to $100.87, falling from a 14-month peak of $102.18 hit in the prior session.

The premium of Brent to U.S. crude <CL-LCO1=R> was just above $4.30 after having fallen sharply to reach $3.09, its narrowest since December 2010, on Wednesday.

The U.S. benchmark also received a boost when a weekly inventory report showed stockpiles fell by more than 10 million barrels, the biggest drop for the time of year since 2000.

The European Central Bank is expected to leave interest rates unchanged on Thursday. The decision on rates will be announced at 1145 GMT and a news conference follows at 1230 GMT.

Traders are also waiting for Friday's non-farm payrolls U.S. employment report for affirmation that economic recovery is on track. It could also give an indication on when the Federal Reserve will start to scale back its bond-buying programme.