Oil steadies before US energy report

[LONDON] Global oil prices stabilised on Wednesday as investors awaited a US inventory report to gauge demand in the world's top economy.

US benchmark West Texas Intermediate for September delivery was down 18 US cents at US$42.44 a barrel compared with Tuesday's close.

WTI has lost more than 30 per cent of its value in the past two months, and on Friday it tumbled to US$41.35 - a level last witnessed in March 2009.

Nearing midday in London on Wednesday, Brent North Sea crude for October delivery was up five cents at US$48.86 per barrel.

Analysts said prices were unlikely to stage a sustained rally because the market remains awash with supplies from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia.

Later on Wednesday, the US government's Department of Energy (DoE) will publish its latest report on American crude inventories for the week ending August 14.

The weekly update is a crucial barometer of crude demand in the world's biggest economy - which is also a large producer of shale oil.

Analysts expect inventories to decline, but also said stockpile levels remain high after a weaker-than-hoped rise in demand during the summer.

"Output in the US has turned out to be more robust than many had previously assumed, as shale firms have dramatically slashed costs and increased their efficiency rather than cutting production," said Thomas Pugh, commodities economist at research firm Capital Economics.

Demand growth is not keeping pace with supply, especially with the slowdown in China, the world's top energy-consuming nation and its second-biggest economy.

Iran last month also reached an agreement with major world powers to rein in its nuclear ambitions in exchange for the lifting of crippling Western economic sanctions, which have restricted its oil exports.

"This renewed decline in oil prices has largely been driven by a combination of concerns about demand, notably from China, and continued strong growth in supply," Mr Pugh said.

"OPEC has increased its output by almost 1.4 million barrels per day since January and the potential return of exports from Iran early next year could exacerbate the supply glut," he said.

AFP