Oil held near $61 on Friday, recovering from steep losses as the London attacks were expected to have limited impact on the global economy and oil demand, but a robust build in US distillate stocks weighed on the market. US crude for August delivery gained 21 cents to $60.94 a barrel, after losing 55 cents on Thursday.
The contract had dived to as low as $57.20 on Thursday, down about 8 percent from a record-high of $62.10, triggered by panic selling in the wake of bomb blasts in central London that killed at least 37 people. Brent crude rose 23 cents to $59.51 a barrel.
Fears that the attacks might spark a fall in oil demand similar to the September 11 attacks on the United States in 2001, eased as the economic impact looked likely to be small.
"The London bombings are unlikely to cause as deep a disruption in oil demand. They occur against the backdrop of a UK and global economy that remain strong," said Antoine Half, Director of Eurasia Group's Global Energy practice, in a note.
However, a higher-than-expected rise in US distillate stocks weighed on sentiment, with inventories growing 4 million barrels to 117.2 million barrels in the week ended July 1, the US Energy Information Administration (EIA) said.
This was against a forecast of a 1.3 million-barrel build. "The distillate stocks show a fairly impressive build going on and the US refining capacity is extremely high.
It suggests that oil in the US is coping quite well," said David Thurtell, commodities strategist at the Commonwealth Bank of Australia.
Distillate fuel inventories were 3.2 million barrels higher than a year ago, in tandem with demand that was up 6 percent in the same period, the EIA said.
US crude stockpiles fell 3.6 million barrels to 324.9 million barrels, more than forecasts for a 1.1 million draw, but the market largely shrugged this off.
The market is more worried about the impact of disruptions to oil supply as Hurricane Dennis headed for the US Gulf of Mexico, and as oil and natural gas producers began evacuating workers on Thursday.
"Continued worries about supply, compounded in recent days by storm disruptions in the Gulf of Mexico, will likely more than offset worries about any potential impact from the London blasts on consumer confidence," said half.
Several companies said they did not return non-essential workers to offshore platforms and rigs after evacuating them in the week for Tropical Storm Cindy, which came ashore on Wednesday.
But some analysts are hopeful that the hurricane threat would be minimal.
"The longer we can go on without supply outages in the US Gulf, the more likely we get an impressive build in stocks and prices should settle back into the $50s," Thurtell said.
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