By Randy Fabi
SINGAPORE, June 9 (Reuters) - Brent crude rose to $118 on Thursday after Saudi Arabia failed to convince OPEC to raise output targets, and data showed U.S. crude stocks fell sharply last week.
Brent crude for July delivery
OPEC talks broke down in acrimony on Wednesday, underlying concerns about the group's willingness to help control prices, perhaps leaving the oil market more open to speculative attack. [ID:nLDE75704C]
As the only OPEC member with significant spare capacity, Saudi Arabia will now raise output unilaterally.
"What this means is that there will be less spare capacity to handle another unforeseen outage," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
"The market will price in this risk premium, and the way they do that is by speculators coming in and buying it up."
The United States, the world's top oil consumer, had put pressure on Saudi Arabia to deliver a credible deal to cap crude prices and underpin faltering economic growth.
EMERGENCY STOCKPILES
U.S. President Barack Obama was keeping open the option of using strategic oil reserves to cover any supply gap in the world's largest economy, but no decision had been made, a White House spokesman said.
Paris-based International Energy Agency, the industrialized nations' energy watchdog, said it also stood ready to release oil stocks if Saudi could not fulfill all of the world's oil needs. [ID:nN08214799]
Oil prices have rallied since the start of the year on the loss of Libyan oil production because of a civil war, and were approaching 2008 peaks before falling by more than 10 percent in early May. They have traded in a narrow range since then.
U.S. inventory data on Wednesday provided a mixed picture for the market, with gasoline stocks up a more-than-expected 2.21 million barrels last week to 214.49 million.
Domestic crude stocks, however, tumbled 4.8 million barrels, the Energy Information Administration said, surpassing analysts' expectations for a 300,000 barrel decline.
"The resulting tightening in oil stocks is something that we believe can be maintained, and causes us to continue to favour the long side of the market in the near term," said Tom Pawlicki of MF Global.
The dollar's rebound from one-month lows against a basket of major currencies helped offset some of the support from OPEC and tightening U.S. crude stocks. (Reporting by Randy Fabi; Editing by Michael Urquhart)