LONDON, (Reuters) – Oil crept back above $121 on Wednesday, partly reversing a deep sell-off, as foreign ministers met for talks on Libya’s future and the market awaited U.S. inventory data for possible signs of demand attrition.
Wednesday’s modest gains followed a two-day sell off driven by comment from representatives of consumer countries that high prices had begun to depress consumption and Goldman Sachs bank said a rally, which took Brent to a two-and-a-half year high above $127 on Monday, looked overdone.
ICE Brent crude for May rose by 33 cents to $121.25 a barrel by 9:51 a.m. after hitting a session high of $122.19. U.S. crude for May delivery shed two cents to $106.23.
The NYMEX contract’s 5.8 percent drop from Friday by close of business on Tuesday was the biggest two-day percentage loss since May 2010.
As traders and analysts sought to analyse a range of factors, the market mood was cautious.
“There have been plenty of negative factors for oil in the last 48 hours,” Ben Le Brun, Sydney-based analyst at CMC Markets said.
“It’s probably not a bad thing as inflation is the biggest buzzword around the market.”
Reports from representatives of consumer countries the Paris-based International Energy Agency and the U.S. government’s Energy Intelligence Administration both said on Tuesday high oil prices were beginning to brake the pace of economic growth and erode demand for fuel.
The IEA nevertheless left its 2011 fuel demand growth forecast unchanged, as did the Organisation of the Petroleum Exporting Countries, while the EIA trimmed its prediction for 2012.
Industry data late on Tuesday showed U.S. crude inventories unexpectedly rose last week and oil product stocks fell as U.S. refinery use plunged.
The figures will be followed on Wednesday by the U.S. Energy Information Administration’s inventory report at 3:30 p.m.
OPEC has repeatedly said there is more than enough oil in the market to meet demand.
Leading exporter Saudi Arabia has said it will pump extra crude if there is a need, but following a big increase in March, Saudi-based industry sources said the kingdom had reined in production.
A new blend the kingdom produced to compensate for barrels of light, easy-to-refine crude lost to Libyan unrest, has met a muted response from the market.
Violence in OPEC-member Libya has shut off most of its production, which reached around 1.6 million bpd before unrest began.
Oilfields controlled by rebels are pumping around 100,000 barrels per day (bpd), but only a “minimal amount” is being exported, a rebel spokesman said on Wednesday.
He was speaking in Qatar, where ministers gathered for talks on Libya’s future. Some participants were eager for air strikes against Muammar Gaddafi’s forces as they feared the conflict could settle into a bloody stalemate.
Even that would only represent a modest demand shock, compared with previous supply disruptions, and OPEC spare capacity should be enough to cope with it provided the upheaval doesn’t embroil other producer nations.
Saudi Arabia alone has more than 3 million bpd to spare and the hitherto bullish Goldman Sachs said on Tuesday speculators had pushed prices ahead of fundamentals of supply and demand.