LONDON: Brent crude bounced off a four-year low on Wednesday to above $85 a barrel, a level that was still down 25 percent since June, as a drop in the value of the dollar attracted some cautious buying in the oil market.
On Tuesday, the Brent benchmark lost almost $4, its biggest daily fall in more than three years, after the West's energy watchdog slashed its forecasts for world oil demand.
Brent for November delivery was up 31 cents at $85.35 by 1410 after initially sliding to another fresh post-2010 low of $83.37.
U.S. crude gained 40 cents a barrel to $82.24, rebounding by more than $2 after hitting a 27-month low of $80.01 earlier in the session. On Tuesday, the contract posted its largest fall in a single session in nearly two years.
Traders said prices had rebounded slightly after U.S. crude held above $80 a barrel, a symbolically important level in a market that has crashed through most lines of major support.
The dollar index fell almost 1 percent against a basket of currencies, reversing part of a near 10 percent rally since May that has weighed on commodities priced in the U.S. currency.
STILL UNDER PRESSURE
But oil prices remained under pressure as core members of the Organization of the Petroleum Exporting Countries appeared to be focused on fighting for market share rather than on cutting production to shore up prices.
Weak European markets and slowing Chinese inflation added to concerns about global growth, which have helped extend the rout.
"The global environment is bearish," market analyst Olivier Jakob of Petromatrix said. "There's broad acceptance by the market that Saudi Arabia is willing to let prices go lower. With the velocity of the drop, definitely you've got people liquidating positions."
U.S. economic data was mixed. Producer prices fell for the first time in more than a year, a sign that energy demand could get a boost from lower prices, but retail sales fell.
Dealers said technical selling was coming into play, with Wall Street banks scrambling to neutralise exposure to big oil option trades, but that the main pressure came from burgeoning global oversupply.
"For as long as OPEC makes no move to tackle this threat of a massive oversupply by reducing production, prices are likely to continue to fall," Commerzbank said in a report. "OPEC producers cannot hope for any reduction in shale oil production in the U.S. in the near future."
Data from the United States suggests no eminent slowing of the boom in shale oil production.
U.S. shale oil output is set to grow by around 106,000 barrels per day in November from October, the U.S. Energy Information Administration said.
On Tuesday, Iran said it could live with lower oil prices, joining the chorus of similar signals from core OPEC members Saudi Arabia and Kuwait.
U.S. commercial crude oil inventories were forecast to have increased in the week ended Oct. 10, while refined products probably fell, according to a Reuters poll of analysts.
Industry group the American Petroleum Institute (API) will issue its report later on Wednesday, and the EIA will follow with its weekly data on Thursday. The reports have been delayed a day due to Monday's Columbus Day holiday.
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