London: Brent crude oil held above $98 a barrel on Friday as the market rebounded from a two-year low but concerns over weak demand and plentiful supplies, plus a strong dollar, continued to weigh on prices.
Brent futures have sold off hard this week, and hit a two-year low on Thursday at $96.72 a barrel.
ICE Brent futures for October were up 28 cents at $98.36 a barrel by 0922 GMT (2:52 p.m. in India), but the international oil benchmark was heading for its biggest weekly loss since the week to August 1.
The October contract expires on Monday, adding to the selling pressure, as investors and traders have been rolling their positions forward into November.
US crude was 43 cents higher at $93.26 a barrel after closing up $1.16 in the previous session.
Analysts said the market had found some support after testing multi-year lows on Thursday, with some investors viewing oil as oversold.
"There was a big bounce in WTI (US) crude yesterday, which is a reflection of the fact that we've seen such a big selloff recently that the market was getting a bit over-extended," said Ole Hansen, senior commodity strategist at Saxo Bank.
"Have we seen the lows for now? It's too early to say. The shorts are now being covered but any uptick in the market will probably be met with renewed weakness unless the geopolitical issues flare up."
Crude faced heavy selling on Thursday due to comments in the International Energy Agency's (IEA) monthly report that weaker consumption in China and Europe had caused global oil demand growth to soften at a remarkable pace.
This was confirmation of a situation that has assailed physical crude markets all summer. Sluggish demand from European and Asian refiners has kept physical prices under pressure and created a glut of oil in the Atlantic Basin. As a result, traders have been stockpiling barrels.
The IEA cut its demand growth projections by 150,000 barrels per day (bpd) to 900,000 bpd for 2014 and by 100,000 bpd to 1.2 million bpd in 2015.
"In the IEA report we saw there is a big difference between the push in new supply from outside of OPEC and the fairly slow consumption growth," said Bjarne Schieldrop, chief commodity analyst at SEB Commodity Research.
As well as a build in shale oil output from the United States, Libyan production has risen to just over 800,000 bpd and is expected to hit 1 million bpd in October.
"It's very unstable, you never know how long it will last, but it is there, and we have refineries going into turnaround at the same time," Mr Schieldrop said.
Saudi Arabia, holder of the world's largest spare output capacity, cut production by 400,000 bpd in August.
Dollar strength
The commodities complex is under pressure from a strong dollar. The dollar index is on track for its ninth straight week of gains - its longest winning streak since 1997.
A stronger dollar makes dollar-priced commodities more expensive for buyers using other currencies. "It's been a horrible week for commodities all round," Mr Hansen said.
The slide in oil prices is said to have been arrested by a step up in tensions between Russia and the West. On Thursday, Russia warned the United States that air strikes in Syria against Islamist militants would be an act of aggression without a UN security mandate.
On Friday, the European Union implemented tougher sanctions against Russia because of the standoff over Ukraine, targeting some state-owned companies and individuals.
The United States will also release details later on Friday of its own new sanctions against Russia. These are expected to target Sberbank, Russia's largest bank, and further limit Russian banks' access to US capital.
Ultimately, this will be detrimental to growth and future oil demand, analysts warned. "As long as the EU and Russia continue to sanction themselves, European economic growth can only go one way and that is down," said Olivier Jakob, an oil analyst at Petromatrix in Switzerland.
Copyright @ Thomson Reuters 2014
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