Oil held broadly steady at near $120 a barrel today, rebounding from three-month lows due to an attack on a one million barrel per day pipeline in Turkey.
US light crude for September delivery dropped 11 cents to $119.91 a barrel by 0153 GMT, while London Brent crude inched up 6 cents at $117.92 a barrel.
Oil ended $1.44 higher yesterday, as the Baku-Tbilisi-Ceyhan (BTC) oil pipeline was still ablaze after Tuesday night's explosion. The oil link pumps more than 1 per cent of world supply from fields in the Azeri sector of the Caspian Sea to the Turkish Mediterranean coast.
While supply disruptions in Turkey proffered support, traders' focus was largely on concerns over faltering demand in the United States and Europe that knocked prices off a July 11th record of $147.27 a barrel.
"Prices have fallen from an extraordinary high level and demand's going to ease further. There are signs of China slowing their fuel imports after the Olympics," said Mark Pervan, commodities analyst at ANZ Bank in Melbourne.
While China is likely to buy less diesel and gasoline in the post-Olympics period, energy consumption in the world's top consumer, the US, is expected to erode further due to a burgeoning pool of the unemployed.
The number of US workers filing new claims for jobless benefits rose 7,000 last week to the highest level in more than six years, government data showed yesterday.
Other factors include a dollar turnaround, with the dollar index hitting its highest in more than five months.
The dollar index, a gauge of its performance against a basket of major currencies, rose 0.6 per cent to 74.966.
Data from the US government's Energy Information Administration on Wednesday showed a heavier than expected build in crude stocks and distillates. This showed soaring fuel costs and an ailing economy have reduced oil demand.
Crude oil inventories rose by 1.7 million barrels in the week to August 1st and distillate stocks, including heating oil and diesel, rose by 2.8 million barrels.
But factors offering support to oil markets were supply disruptions from Opec member Nigeria amid militant attacks, as well as escalating tension between Iran and the West over Tehran's nuclear program, and the threat of bad weather.
In Iran, a top UN nuclear watchdog official began talks aimed at improving cooperation with the International Atomic Energy Agency over the program, which Iran insists is peaceful.
Diplomats in Vienna said the visit was a fresh effort to extract Iranian clarifications about intelligence reports suggesting it illicitly tried to design atomic bombs.
In Nigeria, Royal Dutch Shell said repairs continued on a pipeline sabotaged last week.
The Altantic hurricane season is predicted to be more active, with up to 10 hurricanes expected to form.
British think-tank Chathan House has also warned in a report that the world faces a serious oil supply crunch within five to 10 years that may drive prices up to more than $200 a barrel, because of inadequate investment by oil companies in raising output rather than for a lack of oil underground.
Reuters