Uneasiness pervaded the markets as European Union leaders began to gather for a summit that is expected to produce a credible solution to the region's raging debt crisis.

"Although the ECB gave investors the rate cut and easier loan terms they were looking for, the markets remain nervous ahead of Friday's EU summit and not all the bulls are sticking around to see the outcome," said Tim Evans, energy analyst at Citi Futures Perspective in New York.

By 12:30 p.m. EST (1730 GMT), ICE Brent crude traded in London at $107.95 a barrel, down $1.58, having dropped to a session low of $107.53, lowest since Nov. 28.

US January crude was down $1.78 at $98.71, after falling to a session low of $98.27, cheapest since Nov. 29.

Brent's premium against US crude widened a bit, to around $9.25, after closing at $9.04 on Wednesday.

Trading volumes were light, with Brent dealings 40 percent below its 30-day average, according to Reuters data. US crude trading volume was down 26 percent from its 30-day average.

The European Central Bank cut interest rates by 25 basis points to 1.0 percent, as expected, and US claims for

unemployment benefits dropped to a nine-month low last week, adding to recent data that reinforces a growing recovery pace in the labor market.

But the decision disheartened investors as the ECB president, Mario Draghi, said the bank did not consider cutting

rates further and he remained cautious about further bond purchases, dashing hopes for more ECB help to quell the debt crisis.

As a result, the euro dropped against the dollar, a situation that discourages investors from buying risky assets such as oil and equities.

"If the euro keeps losing ground against the dollar, then we are going to have oil move lower too," said Harry Tchilinguirian, analyst at BNP Paribas.

As investors awaited for signs of an agreement at the summit on a comprehensive plan to contain the region's debt crisis, European Commission President Jose Manuel Barroso appealed to European leaders to put aside differences to support their common currency.

However, analysts at U.S. brokerage Jefferies Bache suggested the market had already discounted a successful EU summit outcome.

"We are still viewing this as a 'buy the rumor and sell the news' scenario that could play out during the next few sessions by a downside move across the various fixed assets as actual implementation of any EU strategies could prove elusive," they said.

The day's slide extended Wednesday's losses that in part was brought about by an unexpected increase in weekly US crude inventories, and a larger than expected rise in petroleum products.

Top oil exporter Saudi Arabia has said it was pumping at more than 10 million barrels per day, its highest rate in decades, signaling it would meet customer demand with more oil if needed. It was another factor in Wednesday's losses.

Disclosure of the latest Saudi oil output rate came ahead of the Dec. 14 meeting of the Organization of the Petroleum Exporting Countries, which is not expected to make big changes in output policy, with oil well above $100 a barrel.

The prospect that the EU may ban imports of crude from Iran — OPEC's second-largest producer — over Tehran's nuclear work remains supportive for oil prices. But diplomats and traders say that, if implemented, an embargo could damage the region's economy without doing much to undercut Iran's oil revenues.

On Thursday, US President Barack Obama said the US was considering all options on Iran and would work with allies, including Israel, to prevent Tehran from acquiring a nuclear weapon.