Oil prices rose on Thursday as the International Energy Agency revised up its 2004 demand estimate, raising bulls' hopes for the longer term.
US light crude futures were up over a $1 a barrel on the New York Mercantile Exchange (NYMEX) to $38.60. London Brent was 51 cents higher at $35.80.
After falling 11 percent from last week's $42.45 record NYMEX high, prices have mostly stabilised ahead of a market holiday in the United States on Friday.
Fund managers, heavy sellers in the past week on a promise of more oil from the Organisation of Petroleum Exporting Countries (OPEC) and increasing stocks in the United States, are expected to cover those positions before the long weekend.
The IEA said on Thursday it had revised its demand growth forecast for 2004 by 360,000 barrels per day to 2.3 million bpd, the steepest rate since 1980.
"Today's IEA Monthly Oil Report paints a picture of much tighter oil market than its previous report a month ago, though still not tight enough in our view," said Barclays Capital in a research note.
"The change in the IEA's projections is certainly in the right direction and is part of a tendency for market balances to be revised so that they paint an increasingly stronger level of fundamental support for current high oil prices," researchers at the investment bank said.
The bank raised its forecast for 2004 WTI prices to $37.90 per barrel on Wednesday.
The IEA also said short-term Opec supply was likely to rise, following a 470,000 barrel per day increase in cartel output in May, led by Saudi Arabia and the United Arab Emirates but constrained by a fall in Iraqi production.
NYMEX is closed on Friday to mark a US day of mourning following the death of former President Ronald Reagan. London's International Petroleum Exchange will close early on Friday.
Market sources said Saudi Arabia had increased July supplies to some global oil majors while cutting back several key European lifters.
July allocations, the first signal of the kingdom's production plans after its pledged 9.1 million barrels per day output for June, were very mixed, traders said.
But although state firm Saudi Aramco offered a selection of increases and decreases to its term customers, it continued to make additional barrels of July oil available for spot purchase, traders said.
Traders were watching a Nigerian general strike closely, but shipping sources said the country's 2.3 million bpd of crude exports appeared unaffected.
In Jakarta, Opec President Purnomo Yusgiantoro said the cartel had observed the price decline of the last week, and, asked by reporters if oil would fall again in the third quarter, said the group hoped for further weakness.
"It will depend on how significant the non-fundamental factors would be, because non-fundamental factors are hard to predict," he said.