Oil extended losses on Thursday on signs US demand is slow to rebound while Europe's fiscal troubles damp expectations for growth.

US crude inventories soared last week, a government report showed on Wednesday, while the euro sank to a 10-month low against the dollar after Portugal's sovereign credit rating was downgraded.

"Crude inventory gains surpassed most estimates and that indicates that the economic recovery has not really translated into a crude oil demand increase," said Serene Lim, a Singapore-based oil analyst at ANZ.

“Prices will be within a range between $78 and $82 unless the dollar gains further."

US crude for May delivery shed 32 cents to $80.29 a barrel at 0259 GMT, having traded in a range between $69 and $84 for all of this year. ICE London Brent for May declined 34 cents to $79.28.

Commercial crude oil stockpiles in the US jumped by 7.3 million barrels to 351.3 million barrels in the week ended March, the Energy Information Administration (EIA) said on Wednesday, eclipsing analysts' average expectations of a 1.5 million-barrel rise.

Although EIA data show total US oil consumption increased by 3.6 per cent last week, demand in Europe weakened sharply in January, down by 1.55 million barrels per day from a year earlier, Barclays Capital said citing data published by the Joint Oil Data Initiative (JODI).

That was the largest monthly drop for European oil demand ever, according to Barclays.

"European oil demand has become significantly worse in recent months, and is now far worse than it was at the height of the financial crisis," Barclays analysts led by Paul Horsnell said in the bank's weekly oil data review.

Fitch rating agency's downgrade of Portugal added to worries about debt levels and growth in the euro zone's smaller countries. European Union leaders are holding a summit starting on Thursday to deal with Greece's debt crisis.

The dollar was little changed against a basket of currencies on Thursday, near 10-month highs.

Economic data in the euro zone painted a mixed picture, with manufacturing activity growing in March at its highest level since the end of 2006, but industrial orders in January falling, underscoring the fragility of the economic recovery. – Reuters