LONDON: Oil rose above $74 on Monday in line with a timid recovery across financial markets, but was set for its biggest monthly loss in 18 months after European economic crisis raised the prospect of reduced fuel demand.
Although still under pressure following Fitch’s downgrade of Spain’s credit rating on Friday, the euro rose modestly against the dollar on Monday and Asian and European markets edged higher.
Trade volumes were limited as the US and UK financial markets are closed on Monday for public holidays.
US crude for July delivery rose 53 cents to $74.50 a barrel by 1018 GMT, after settling down 58 cents on Friday.
London Brent crude rose 62 cents to $74.64 a barrel.
Front-month US crude, which hit a 19-month intraday high of $87.15 at the start of May, has so far fallen by 14 percent this month in the steepest monthly drop since late 2008 when the market was crashing from a record of $147.27 in July that year.
Analysts say oil has moved into a range that could endure.
"It’s been a bad month across asset classes," said Olivier Jakob of Petromatrix.
"But the oil market is now pretty well balanced. For us $70-$80 is something which is valid. We don’t really see what could justify prices over $85 and below $70, you would start to see some consumer hedging."
The $70-$80 range is also the level members of the Organization of the Petroleum Exporting Countries have said they favor as acceptable for consumers and producers, which has led to a market assumption a sustained drop below $70 would lead to improved OPEC discipline.
According to the latest Reuters survey, OPEC is only delivering 51 percent of agreed output curbs.
At the same time the group’s surplus capacity, which it said earlier this year stood at more than 6 million barrels per day, is likely to prevent the market overheating for the medium term especially as prospects for oil demand are very uncertain.
In Europe, economic turmoil and a weakened euro, which has made dollar-denominated commodities relatively expensive, is expected to limit consumption.
Even the long-held conviction growth in Asia will sustain oil demand could be under short-term strain.
Chinese Premier Wen Jiabao said on Monday global economic growth was vulnerable to sovereign debt risks and raised the possibility of a second economic downturn.
The most recent data from the Commodity Futures Trading Commission on Friday implied still bearish sentiment for oil prices as money managers cut net crude oil long positions on the New York Mercantile Exchange by 12,558 positions in the week to May 25. –Additional reporting by Judy Hua
