Oil prices stayed near flat on Wednesday, buffeted in low-volume trade as an interest rate hike by China and Europe's debt woes kept demand concerns in focus ahead of weekly reports expected to show a drop in US crude stocks. China's rate rise, the third in 2011, reinforced concerns about demand, especially in the short term, and the late Tuesday cut of Portugal's credit rating by Moody's underlined worries over the sputtering global economy.
"I think the market accepts that China is making a concerted attempt to rein in inflationary forces through use of interest rates, so it's short-term bearish for commodity usage but medium-term, it's supportive if controlled growth is managed," Mark Thomas, head of energy Europe at Marex, said. Brent futures for August ended near flat, gaining 1 cent to settle at $113.62 a barrel, having recovered from an earlier $111.91 low.
US crude fell 24 cents to settle at $96.65 a barrel, having bounced off a $95.90 low to finish above the August contract's $96.26 200-day moving average. "On (US crude), the bulls are trying to hold the August contract above the 200-day moving average," said Addison Armstrong, analyst at Tradition Energy in Stamford, Connecticut. Trading volume remained tepid after Monday's US Independence Day holiday, helping cause volatility, and Brent and US crude stayed on pace to trail 30-day averages.
Growth in the US services sector slipped in June, but the report from the Institute for Supply Management's steady employment reading was viewed favourably ahead of Friday's key US June jobs report that is expected to show nonfarm payrolls rose modestly. Supportive to oil, according to brokers and analysts, was Tuesday's news of an unexpectedly mild reduction in Saudi official selling prices, viewed as an indication that Opec's top exporter was not moving to push prices lower.
The International Energy Agency's co-ordinated release of consuming nations' oil reserves also was being viewed as insufficient and an ineffective tool to pull prices lower. Worries about inflation increased gold's attraction as a safe-haven play, pushing it to a two-week high. Analysts and brokers said oil's appeal as a store of value against shaky currencies limited its losses.
"While China's rate hike and Europe's problems are bearish, oil gets caught up in the flight-to-quality trade and, like gold or silver, oil is used to hedge against inflation," said Phil Flynn, analyst at PFGBest Research in Chicago. Oil investors awaited weekly inventory reports on US oil inventories, with industry group American Petroleum Institute's report first up at 4:30 p.m. EDT (2030 GMT) on Wednesday.
Crude stocks are expected to have fallen last week, with gasoline stockpiles seen little changed and distillate stocks edging up, a Reuters survey of analysts on showed. US retail gasoline demand fell last week compared to the year-ago period as prices remained above where they had been in the same period in 2010, MasterCard said. But demand rose last week against the previous week.
Libya's conflict and turmoil in Yemen and Syria continue to demand investors' attention. Much of Libya's state-owned oil tanker fleet remains anchored because of cash flow issues and rebels took control of the village of Al-Qawalish, south-east of Tripoli, after a six-hour battle. Pirates fired a rocket-propelled grenade into a fuel oil tanker near the Yemeni port of Aden, but the vessel and its cargo were recovered, the ship manager said.