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Oil steady after slide to 7-week low on US demand

SINGAPORE - Oil steadied above $124 on Thursday, after extending a steep drop from this month's record high due to US data that signalled economic woes and high prices were slowing demand in the world's top consumer.

Prices have now fallen more than $23 a barrel from their all-time peak above $147 on July 11, marking the biggest decline in dollar terms in the market's history. In percentage terms, the 15 percent tumble is the steepest pull-back since early 2007.

US light crude for September delivery gained 16 cents to $124.60 a barrel by 0655 GMT, after hitting a seven-week low of $123.89. Prices had tumbled by more than $4 a barrel on Wednesday, its sixth day of losses over the past seven sessions.

London Brent crude rose 20 cents to $125.49 a barrel.

The decline came after data late on Wednesday showed a larger-than-expected increase in US gasoline stocks last week, together with weak implied demand. US crude stocks dropped after a sharp decline in imports.

‘We do not see any factors to push up prices at all at the moment,’ said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo, adding he expected oil to move towards $117 or $118 a barrel this week.

‘In the long run, demand in emerging markets should outweigh slower demand in the US and other countries but for (now) the market is focusing on the short term only,’ Emori added.

Surging demand from emerging economies such as China and India has fueled a sixfold rise in oil prices since 2002, but concerns over flagging demand in top consumers, such as the United States, Japan and South Korea, have dampened the rally as of late.

Investment bank Lehman Brothers on Wednesday slashed its forecast for 2008 world oil demand growth due to a steeper-than-expected slowdown in energy consumption in the United States and other OECD countries.

The market's rout appeared to spur some traders to unwind short-dollar/long-oil positions built up earlier this year, helping lift the US currency to a one-month high against the yen and in turn driving down other commodity prices.

Open interest in crude oil futures tumbled to its lowest level since January 2, 2007, indicating that the sharp slide in oil prices was more the result of investors liquidating long positions rather than taking up fresh shorts.

Adding further downward pressure, Hurricane Dolly, which had caused oil prices to firm up briefly early this week, caused only minor output cuts at some refineries and offshore oil and natural gas facilities in the Gulf of Mexico.

Potentially adding some support to prices, the main militant group in Nigeria's oil-producing Niger Delta said it would attack major oil pipelines in the next 30 days to prove it had not received payment from the government to end its campaign.

‘This will trigger the market if it happens, but not just from the warning,’ Emori said.