Oil bounces off 3-month low

2 mins read

Oil steadied near $119 a barrel on Wednesday but not far off a three-month low hit due to concerns that demand will suffer from an economic slowdown, as the market awaited data expected to show a rise in U.S. crude inventories.

An explosion on a key oil pipeline in eastern Turkey late on Tuesday provided a bullish backdrop, adding to Nigerian supply concerns and the threat of disruptions from Iran should its standoff with the West worsen.

U.S. light crude was 12 cents up at $119.29 a barrel by 1325 GMT, recovering from lows of $118.10 hit earlier in the session.

London Brent crude was 9 cents higher at $117.79 a barrel, off highs of $118.73 hit on news that authorities had halted oil flows along the Baku-Tbilisi-Ceyhan oil pipeline following an explosion.

Oil has fallen almost $30 from its mid-July peak of $147.27 a barrel — a drop of nearly 20 percent — amid growing evidence that high prices had finally started to take a toll on demand, although many in the market say its six-year bull run is not over and has further to go.

"Prices will remain on the downward trend, but I don't think they will fall that much, but be rangebound around $118-$120 a barrel," said Gerard Rigby of Fuel First Consulting in Sydney.

A broker in London, who asked not to be named, said market participants expected that a close below $116 would set the stage for further declines.

"I would not be at all surprised if it goes below $116 in the short term, but there is plenty out there that could push it back up again," he said.


Attention turned to the U.S. government's weekly inventories data, due out later on Wednesday and expected to show a rise in crude and distillate stocks alongside a drop in gasoline stocks.

A Reuters poll of analysts forecast a 300,000-barrel rise in crude inventories, a 2.1 million-barrel increase in distillates, and a 1.2 million barrel draw in gasoline stocks.

In the United States, Tropical Storm Edouard, the fifth of the 2008 Atlantic hurricane season, hit the Texas coast without causing any major disruptions to U.S. energy operations, which also helped to squash concerns and bring prices down.

The storm caused minor oil and natural gas outages as it passed through the U.S. Gulf of Mexico, and companies began to fly evacuated staff back to rigs.

Traders kept a watchful eye on news about OPEC member Iran, the world's fourth biggest oil producer, which remains locked in a tense standoff with the West, notably the United States, over its nuclear programme.

Iran says it is only seeking to master nuclear technology to generate electricity and has repeatedly refused to halt its atomic work, prompting the U.N. Security Council to impose three rounds of penalties on Tehran since 2006.

The White House on Wednesday said it believed western powers would have to take further measures against Iran "that would be punitive", citing a lack of a concrete response from Tehran to a demand that it freezes its nuclear activities.