Oil falls to $113 on bearish global demand

Fri Aug 15, 4:28 AM
LONDON (Reuters) - Oil dropped by $2 to $113 a barrel on Friday to trade near the lowest since early May, pressured by faltering global demand and rising supply.
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(Reuters)

LONDON (Reuters) - Oil dropped by $2 to $113 a barrel on Friday to trade near the lowest since early May, pressured by faltering global demand and rising supply.

Crude has fallen sharply since reaching an all-time high of $147.27 a barrel on July 11 partly on concern about weakening demand and fell as low as $112.31, the lowest since May 2, on Tuesday.

"The demand side is a major concern. Supplies from OPEC countries are rising but there is a shortage of buyers. The industrial use in China has been cut back," said Gerard Burg from National Australia Bank.

U.S. crude for September delivery fell $2.04 to $112.97 a barrel by 0818 GMT (4:18 a.m. EDT). The contract will expire on August 20. London Brent's new nearby contract, October, lost $1.77 to $111.91 a barrel.

Supply has been rising as demand ebbs. Output from the Organization of the Petroleum Exporting Countries rose 145,000 barrels per day in July to 32.8 million bpd, the International Energy Agency said this week.

Oil also fell as the dollar strengthened following further proof that the U.S. economic slowdown is spreading. The economy of 15-nation euro zone contracted 0.2 percent in the second quarter, data showed on Thursday.

The euro hit a six-month low against the dollar on Friday. Weakness in the U.S. currency earlier this year had boosted the appeal of oil and commodities to investors as a hedge against inflation.

Fighting between Russia and Georgia, a key supply route from the Caspian to Europe, has lent support to oil. But analysts said diplomatic efforts to secure a peace accord reduced the risk of supply disruption.

Russian troops remain deep inside Georgian territory on Friday, hours before U.S. Secretary of State Condoleezza Rice arrives to secure Tbilisi's signature to a peace deal with Moscow.

"While still a dangerous transitional period, the fact that diplomacy will now replace military action bodes well," said Edward Meir, oil analyst at MF Global, in a report.

(Reporting by Felicia Loo, editing by William Hardy)