Oil prices slipped to their lowest level in five months before rebounding on Thursday as dealers took pause from a three-day decline ahead of US data expected to show healthy crude stocks and rising distillate inventories.
Oil has slumped more than 6 percent in two weeks as the end of the US driving season and a perception of easing geopolitical and weather risks prompts traders to refocus on fundamentals, including a healthy surplus in US crude stocks.
US light crude for October delivery rose 23 cents to $67.73 a barrel after hitting a low of $67.41, the weakest since April 10 and one cent below the 200-day moving average, a key support indicator for speculators.
London Brent crude climbed 19 cents to $66.12. "There's no bullish news the cease-fire in Lebanon is lasting, no hurricanes are hitting the oil facilities, no Nigerian sabotage attacks have happened recently," said Tony Nunan at Mitsubishi Corp's risk management unit in Tokyo.
"Gasoline demand was strong during summer but it was well met despite all the fuss about gasoline spec changes and so on, and now traders ended up with high inventories." US weekly inventory data due later on Thursday is expected to show a 1.3 million-barrel drop in crude stocks but a 1.3 million-barrel build in inventories of distillates, including heating oil, jet fuel and diesel.
Gasoline stocks were seen down 800,000 barrels a much milder drop than the 4.3 million-barrel fall in the corresponding week in 2005, caused largely by Hurricane Quatrain as the driving season ended on the September 4 Labour Day holiday.
US crude inventories already stand around 6 percent higher than a year ago and the surplus is likely to widen due to the lack of hurricanes in the Gulf of Mexico. In Japan, winter kerosene inventories are 21 percent more than a year ago. Mounting stocks coupled with weakening refining profits and the looming seasonal demand slump in autumn may be setting the market up for even deeper losses, some analysts say.
"I think we have probably another $10 potential downside on oil, not very short term, but more by the end of the year," Frederic Lasers, head of commodities research at Society Generate, told a conference in Hong Kong. "Fundamentals are pleading downward correction."
A mild Atlantic storm season that has produced only one brief hurricane so far has weighed on prices, threatening to drag the year-ago price comparison into negative territory for the first time since 2004. US crude closed at $64.37 one year ago. Tropical Storm Florence slowly strengthened in the open Atlantic on Wednesday and could grow into a hurricane, but computer tracking models projected the storm would spare the US Gulf Coast and its oil facilities.
Iran's nuclear row with the West rumbled on, with senior diplomats from six world powers meeting in Berlin on Thursday to discuss possible sanctions after it ignored a UN Security Council deadline to freeze its nuclear enrichment programme. But the late-stage diplomacy and Russia and China's unease over any punishment has prompted traders to discount the risk to supplies.
Iranian officials also downplayed the risk. "I don't think the Security Council will put sanctions against oil and gas," Mohammed Hadi Nejad-Hosseinian, deputy oil minister of the world's fourth-biggest oil exporter, told reporters at a conference in Singapore.