London: Brent pared early gains to trade at $112.50 a barrel after the International Energy Agency (IEA) cut its estimate for demand growth and raised its supply forecast on Tuesday, countering support provided by rebounds in the euro and in stock markets.
The IEA, which advises 28 industrialised countries on policy, said slowing economic growth had led the agency to cut its oil demand growth forecast by 160,000 barrels per day for 2011 and by 190,000 bpd for 2012.
Supply would also rise more rapidly than previously forecast over the next year according to the report, with Libyan crude oil production capacity coming back sooner than expected and signs Opec output was continuing to grow.
“News that Libya may have half a million barrels of crude ready to export is a nice signal for supply,” said Tobias Merath, Head of Private Banking Commodity Research at Credit Suisse.
“But there are still plenty of problems and in the end the WTI-Brent spread is very high for a reason,” he added, referring to Monday’s deadly attack on a key Libyan oil refinery.
Brent was 17 cents higher at $112.42 a barrel at 1111 GMT, erasing gains of $1 a barrel in the early hours of trade. US crude was 84 cents higher at $89.03 a barrel, just off an early high of $89.21.
The IEA’s revision followed a similar cut in another closely watched report on Monday by the Organization of the Petroleum Exporting Countries. Disappointing US data was the main worry, but a slowdown in China and India was also a concern.
“Oil demand is weak going forward. If we are going to rely on the global economy, then we have to rely on China, the only economy with decent numbers coming out,” said Rob Montefusco, an oil trader at Sucden Financial.
The world’s top consumer, the United States, also lowered its projection for growth earlier this month, trimming the figure for demand in 2012 by 250,000 bpd.
The dollar weakened against a basket of currencies supporting the commodities complex, but stock markets erased early gains on heightened fears of a European banking crisis led by worries about French banks.
“There is some confidence returning, but I don’t think anybody would be putting any big positions given the global situation,” said Victor Say, an analyst at Informa Global Markets in Singapore.
“You never know what is going to blow up in Europe next.”
An expected drop in US crude inventories was also supporting markets, with analysts estimating a 3 million barrel draw last week after Tropical Storm Lee disrupted oil production in the Gulf of Mexico, a Reuters poll showed.
Industry group the American Petroleum Institute will release its weekly report on Tuesday at 2030 GMT, followed by government figures from the Energy Information Administration on Wednesday.
In other news, executives at Reuters Russia Investment summit said Russian oil exports would jump and production rise as a result of changes to energy taxes designed to help the world’s largest oil producer keep its lead over Opec heavyweight Saudi Arabia.