US Oil Falls as Stocks Building Close to Highs

U.S. crude futures fell on Tuesday ahead of data expected to show that inventories in the world's top oil consuming nation have risen close to exceeding record-highs.

Brent also fell but was cushioned by continued geopolitical concerns of an escalation of the standoff in Eastern Ukraine. Sanctions against Russia could stymie supplies from one of the world's biggest producers.

U.S. crude fell $2.34 to $102.03 a barrel by 13:45 a.m. EDT (1745 GMT) while Brent crude was down 93 cents to $108.96 a barrel, having lost over a dollar earlier.

Analysts said in the absence of a major escalation in Eastern Ukraine, where separatists still hold government buildings in defiance of a peace accord struck last week, attention instead has turned to U.S. crude oil inventories.

Stocks in the country are approaching all-time highs - after building 10 million barrels in the week ending April 11 they reached 394 million barrels, close to the record 398 million barrels hit last year.

The Energy Information Administration will issue inventory data on Wednesday while American Petroleum Institute data is due later on Tuesday. Analysts polled by Reuters think 2.7 million barrels were added to stocks last week.

"That's going to put us at a lofty level. The all-time record is within shooting distance here," said Bob Yawger, director of commodities futures at Mizuho Securities. "Many market participants are wary of extending the upside ahead of the EIA numbers tomorrow."

Weighing U.S. futures down is the unravelling of some of the political risk premium associated with the crisis in Ukraine, which has led to the worst standoff between Washington and Moscow since the Cold War.

"Going into the three-day holiday it was 'buy everything', no one wants to be short into the weekend. Now traders acknowledge the risk is Brent," said Phil Flynn, analysts at Price Futures Group. "Definitely Brent is going to be the first line of attack in the risk trade," he said.

Brent's milder decline caused the spread between it and the U.S. benchmark West Texas Intermediate (WTI) <CL-LCO1=R> to widen to as much as $7.41 a barrel, the widest since March 26. By 13:45 a.m. EDT (1745 GMT) It was $7.18, 88 cents lower.

In Ukraine, acting President Oleksander Turchinov called for the resumption of an "anti-terrorist" operation in the east of the country after a local politician from his party was found dead there with signs of torture.

U.S. Vice President Joe Biden, visiting Kiev, warned Russia "time is short" for defusing the situation there but Russia, denying it is orchestrating militants in the east, retorted that any resolution will take time.

Washington signaled on Monday it could impose sanctions on Russian President Vladimir Putin. Oil investors fear further sanctions may disrupt oil supplies from the key producer.

"A lot of the Ukraine tension is priced in and will keep underpinning oil prices," said London-based CMC Markets analyst Michael Hewson.

Investors are also watching progress of talks between Iran and world powers to end Tehran's nuclear program. President Hassan Rouhani's government confirmed it had reshuffled the leadership of Iran's atomic agency to sideline nuclear experts opposed to talks with the West.

(By Sabina Zawadzki; Additional reporting by Ron Bousso in London and Manash Goswami in Signapore; Editing by David Evans, Marguerita Choy abnd Tom Brown)