Oil held steady near $69 a barrel on Tuesday, caught between fears that high prices and tighter policies in China and the United States will curb demand and the risk of a disruption to Iranian supplies.
US light, sweet crude slipped 8 cents to $68.90 a barrel on Tuesday ahead of the July contract's expiry, having lost 90 cents or 1.3 percent on Monday. European benchmark Brent was down 19 cents at $67.92.
Oil prices, which have traded in a $68-$73 band for more than six weeks, fell a day ago after Iran's foreign minister said there was a "positive atmosphere" in the dispute over its atomic work, raising hopes for a resolution to the six-month stand-off.
But he did not say when Tehran would respond to a package of incentives meant to stop its nuclear programme, and President George W. Bush reiterated on Monday that Iran faced the prospect of UN Security Council action if it rejected the offer.
"The Iranian nuclear issue can turn very bullish any time and therefore is flooring the market in the short-term," French bank Society General said in a report. The six world powers, which offered the package, have given Iran, the fourth biggest oil exporter, until a Group of 8 industrialised nations summit in mid-July to reply.
Concerns over the robustness of oil demand in the two biggest consumers has also undermined prices, pushing them further away from a record high $75.35 a barrel in April, when fears over Iran's supply and the loss of a quarter of Nigeria's output reigned anxiety over the global supply chain.
"The market is caught between the big macro picture of not enough surplus production and refining capacity on the one hand, and faltering demand on the other hand," said Tony Hunan, assistant general manager of risk management at Mitsubishi Corp.
In its monthly report on Monday, Opec said near record $70 barrel oil was already curbing demand and the full effects of higher interest rates may be felt next year. On Friday China, the world's second-biggest oil user, moved to curb growth by raising the proportion of money banks must keep in reserve, triggering a slump in other commodity markets.
Since the start of the year Opec, led by top exporter Saudi Arabia, has slowed output in anticipation of slowing demand and as global crude oil stocks reached 20-year highs. As a share of demand, stocks are well below where they were in the 1970s.
US crude inventories were expected to have eased by 100,000 barrels last week, while gasoline stocks rose by a hefty 1.1 million barrels, their eighth build in a row, despite the start of the driving season, according to a Reuters
The first weather-related US refinery glitches occurred on Monday, sounding a warning after weather forecasters have predicted a more active than average hurricane season.
Cottage Petroleum Corp's refinery in Lake Charles, Louisiana, and Total A's Port Arthur, Texas, refineries had to interrupt production on Monday due to heavy rainstorms. Operations returned to normal later in the day.
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