Oil rebounded above $66 a barrel today, after a drop of more than 4 per cent to its lowest in eight weeks as weak US home sales unleashed doubts about the pace of a fuel demand recovery in the world's top energy consumer.
Spooked by a government data showing a large build in US crude oil stockpiles earlier in the week, oil prices are on track to snap two straight weeks of gains and post a drop of nearly 8 per cent this week - their worst weekly performance in over two months.
US crude for November delivery was up 32 cents at $66.36 a barrel by 0350 GMT, after settling down $3.08 yesterday.
London Brent crude gained 61 cents to $65.43.
Analysts said oil's gain today was largely a technical rebound, with demand and supply fundamentals still weak and showing little signs of improvement.
"There is a strong technical resistance at around the $65 level and prices are bouncing back now because the market still believes that prices will start rising towards the $75 level, when US crude stocks come down in the fourth quarter," said Tony Nunan, an analyst at Mitsubishi Corp in Tokyo.
Today's gains came despite a rally in the US dollar, which was supported by short-covering. The dollar index was up around 76.911 points, after rising more than 1 per cent yesterday.
Crude prices dropped 4.47 yesterday as traders shrugged off a positive report of a fall in the number of US workers filing for jobless benefits claims, and focused instead on poor US home sales data that unexpectedly fell for the first time in four months in August, indicating a less vigorous pace of economic recovery from a deep recession.
Additional pressure came from a report that said OPEC seaborne oil exports, excluding Angola and Ecuador, will rise 160,000 barrels per day in the four weeks to Oct. 10.
Oil has jumped over traded in a wide band of between $65-$75 in the past month.
Some analysts said prices look unlikely to trade close to, or break out of, the $75 range in the near term, amid the supply glut, with the latest increase in US crude oil supplies leaving stockpiles at around 9 per cent above its five-year average levels.
"When prices went to $75 so quickly, it was clear that the market has gotten ahead of itself. We could start seeing fundamental support at around $75 only when the U.S. crude stocks fall to around the five-year average," Nunan said.
On the economic front, major world central banks announced yesterday that they planned to scale back massive injections of US dollars into their banking systems as financial markets stabilise after a devastating crisis.
Separately, president of Opec nation Venezuela Hugo Chavez said yesterday he expected oil prices to stabilise at a level of at least $80 a barrel by early next year.
Economic data on tap for today includes US durable goods orders for August, Reuters and University of Michigan consumer sentiment for September and US new home sales data for August.
Reuters