NEW YORK Oil rose in choppy trading Thursday, recouping some of the previous day's sharp losses after the West's energy watchdog forecast a steep rise in demand.
U.S. crude while firmer remained near Wednesday's four-month low, weighed down by data from the Philadelphia Federal Reserve Bank showing a slowdown in regional factory activity, the latest in a series of indicators flagging economic growth concerns in the world's biggest oil consumer.
Limiting gains was the rising tension over a planned rescue of Greece, amid worries about a wider fallout.
"The market is sort of paralyzed until we find out what happens with Greece and the possibility of contagion," said Richard Ilczyszyn, senior market strategist at Lind-Waldock.
Front-month ICE Brent August crude rose $1.01 to settle at $114.02 a barrel, having traded from $112.55 to $114.94.
July crude rose 14 cents to settle at $94.95 a barrel, trading from $94.29 to $95.75.
Brent's premium to U.S. crude slipped to $19 a barrel. It had hit a record $23.34 on Wednesday after the July contract expired, erasing the previous $22.80 record set on Tuesday.
Crude trading volumes for both contracts were on track to finish well below the previous session's, and below or just in the vicinity of 30-day averages.
Ilczyszyn noted U.S. crude July options expire Thursday, adding there was a lot of open interests around $95. Open interest for the $95 July put option stood at 13,647, according to Reuters data, and 3,273 positions for the $95 call.
"It's a mixture between an impulse to liquidate long positions versus an impulse to buy the market on any dip. The question is whether it is still a good policy to buy on weakness, or sell due to the shift in market sentiment," said Tim Evans of Citi Futures Perspective.
IEA'S UPBEAT FORECAST
Early Thursday, oil rallied after the International Energy Agency forecast global refinery crude demand would rise sharply in the third quarter as refiners exit turnarounds and replenish depleted oil product stocks for peak summer demand.
IEA added higher demand and reduced spare OPEC capacity will leave oil markets under greater strain between now and 2012 than previously thought. The forecast sent Brent up to nearly $115 a barrel.
"Brent is probably getting support from the IEA report and the prospect of good demand from China," said Phil Flynn, analyst at PFGBest Research in Chicago.
The Paris-based adviser to 28 consumer countries raised its assessment of how much OPEC oil would be needed this year by 400,000 barrels per day to 30.1 million bpd.
U.S. crude was down this morning after June data from the Philadelphia Fed showed factory activity in the mid-Atlantic region unexpectedly shrank 7.7 percent to its lowest in two years, going against analysts' forecasts for a 6.8 percent rise.
Also weighing on prices were new applications for U.S. jobless benefits which dipped in the latest week but remained at levels too high to put a dent in the unemployment rate.
Traders and analysts said the overall trend remained down, given the stream of negative U.S. economic data and the Greek sovereign debt crisis.
"We believe that the health of the global economy remains the most important underlying factor driving the oil market," said James Zhang, an energy analyst at Standard Bank. "Therefore, we see the softening global economy as an increasing downside risk to the oil price in the near term."
(Additional reporting by Robert Gibbons and Gene Ramos in New York, Claire Milhench in London and Alejandro Barbajosa in Singapore; editing by John Picinich and Sofina Mirza-Reid)
(Corrects Brent premium in seventh paragraph)