Oil steady near three-month lows

Oil prices steadied yesterday after recent heavy falls to three- month lows driven by rising inventories and slowing demand growth.

US crude eased eight cents to $48.53 a barrel after hitting $47.60 on Monday, the lowest level since February 18. London Brent crude was up 18 cents at $49.27 a barrel.

Oil has slumped nearly $10 from April's record high of $58.28 a barrel as the Organisation of the Petroleum Exporting Countries boosts supplies almost to 25-year highs.

Opec yesterday reduced its forecast for world oil demand growth in 2005 by 80,000 barrels per day (bpd) to 1.82 million bpd because of lower than anticipated consumption in the first quarter of the year.

Opec also said new oilfields expected onstream this year would boost spare capacity to about 10 per cent - easing fears that end-year demand would outstrip existing supply.

"Slower demand growth for the United States and China, coupled with the large increases in Opec output since mid-2004 and the substantial efforts by member countries to increase production capacity should remove a large part of the speculative premium in the oil price," an Opec report said.

Higher Opec production has helped swell US crude oil stocks to their highest level since July 1999.

US government data - which has shown crude stock builds in 12 out of the last 13 weeks - is due out today. A preliminary Reuters survey of nine analysts forecast that they were expected to rise another one million barrels.

A firmer US dollar - which has hit seven-month high against the euro - has also pressured oil prices.

A stronger dollar tempts speculators to switch money from commodity markets into treasuries and makes dollar-denominated oil more expensive for investors using other currencies.

Some analysts say the speculative move out of oil may be slowing.

"With speculators now neutral in crude oil after liquidating large net long positions over the past six weeks... further price downside looks limited," Barclays Capital said in a report.