Brent crude held steady near $124 on Thursday as news of a surge in US crude inventories and Western nations' talks on releasing strategic oil reserves offset supply disruption concerns over tension in the Middle East.

France is in contact with Britain and the United States over a possible release of strategic oil stocks while the largest weekly build in US crude inventories in more than a year caught investors by surprise.

Brent crude edged down 11 cents to $124.05 by 0432 GMT after a fall of 1.09 percent in the previous session. US
crude extended losses after a drop of 1.79 percent on Wednesday and was down 9 cents at $105.32.

"There is residual selling from news flow overnight," said Ben Le Brun, a Sydney-based market analyst at brokerage OptionsXpress, pointing to the large build in US crude inventories and the talks on releasing strategic oil stocks.

France's Energy Minister Eric Besson told journalists the US had asked France to join it in a possible emergency inventory release.       Such a release could happen "in a matter of weeks," Le Monde daily said on Wednesday, citing presidential sources.

Historically, "retail gasoline and WTI crude oil prices have declined by on average 9 percent and 12 percent, respectively, in the three months following releases," Deutsche Bank analysts said in a note.

Adding to supply, US crude inventories last week soared 7.1 million barrels, the largest build since July 2010, pushing stockpiles to the highest level since August.      

Stockpiles at the Cushing, Oklahoma delivery point for the New York Mercantile Exchange crude contract rose 1.04 million barrels to 39.56 million barrels, hitting the highest level since last May.

The rise in crude stocks comes as economic growth in the United States is shaping to be lackluster in the first quarter, with new orders for long-lasting US factory goods rising only modestly in February.

Yet comments from Federal Reserve Chairman Ben Bernanke  this week raised expectations of more monetary easing policies to hasten the pace of US economic growth.

Front-month Brent crude is on track to post a second straight quarterly rise of more than 15 percent by the end of this week on support from rising tension between Iran and the West over Tehran's nuclear program, production woes in the North Sea and reported attacks on oil-producing areas in South Sudan.     

A recovery in the US economy also lifted front-month West Texas Intermediate (WTI) crude by more than 6 percent in the first quarter.      "The US economy is still improving and there's a potential saviour in a QE3 package if it weakens," Le Brun said. "This, coupled with any significant downside news coming out of Iran, will underpin the strength in oil prices."     

Deutsche Bank estimated that supply of about 2 million barrels per day (bpd) has been disrupted, with the loss of 800,000-1 million bpd from Iranian exports. - Reuters