Brent crude edged lower on Monday in choppy trading as investors hoped the process to restart oil exports from OPEC member Libya would begin soon as the country's six-month-old civil war neared an end.
Brent pared losses, bouncing with rallying U.S. crude on the day the September contract expired as rising Wall Street equities provided a boost.
Brent crude's forward curve flattened in the months through early next year and its premium to U.S. crude fell on hopes that a swift end to Libya's civil war would bring the country's oil exports back to the market.
Some output will be able to restart in a few months, but it will take as long as 18 months to reach prewar levels, Libya's former top oil official Shokri Ghanem said.
Muammar Gaddafi was a hunted man as remnants of his forces made a last-ditch stand in Libya's capital.
While the Libyan leadership could be in the state of flux for several more days or even a few weeks, developments thus far strongly suggest a return of Libyan exports to the global market place, Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, said in a note.
U.S. crude prices had an early boost from dollar weakness before the U.S. currency recovered as the euro fell back. The dollar had been pressured on speculation that the Federal Reserve this week might indicate a need to take additional measures to support an ailing economy.
U.S. equities also seesawed, slipping early, bouncing and pushing higher, then ending little changed as investors remained cautious after recent sharp declines.
Brent October crude fell 26 cents to settle at $108.36 a barrel, having bounced off a $105.15 low. Brent also had technical support from its intraday recovery back above its 200-day moving average of $107.91.
U.S. expiring September crude rose $1.86 to settle at $84.12 a barrel, having recovered from $81.13. More actively traded October crude rose $2.01 to settle at $84.42 a barrel.
Brent's premium to U.S. crude narrowed to below $24 a barrel, after reaching a record $26.69 on Friday.
U.S. crude trading volumes slightly outpaced Brent. Both topped 500,000 lots traded and Brent surpassed its 30-day average.
Part of U.S. crude divergence from Brent is because traders are starting to bail out of their Brent/U.S. spread positions, said Dominick Chirichella of the Energy Management Institute.
Brent's premium to U.S. crude, partially blamed on the glut of crude at the Cushing, Oklahoma, hub, may linger as the effort to build a pipeline to move crude to the refinery-rich Houston area stalls.
Enterprise Products Partners' cancellation last week of a joint venture pipeline with Energy Transfer Partners due to lack of shipper commitment was the first casualty in the race to build a pipeline.
Before the war cut Libya's output, the country pumped around 1.6 million barrels per day. Most of Libya's high-quality crude went to European refiners. After Libyan exports ceased, tighter supply sent Brent to a two-year high of $127.02 in April.
The limited resistance to rebel forces entering Tripoli may herald a swift resolution to the civil war, opening the potential for the resumption of Libyan oil exports by the end of 2011, JPMorgan said in a note to clients.
Ahead of weekly reports from industry and government on U.S. oil inventories, a preliminary survey of analysts on Monday yielded a forecast for crude stocks to have fallen slightly last week.
Hurricane Irene, the first hurricane of the 2011 Atlantic season, was expected to hit Florida but projected to turn away from the concentrations of production and refineries to the west.
ECONOMIC CONCERNS REMAIN
The sputtering global economy had investors awaiting any indications of central bank intent on stimulus at a gathering of policymakers and other financial leaders in Wyoming later this week.
Federal Reserve Chairman Ben Bernanke will make a speech on Friday at a lodge in Wyoming's Jackson Hole, where policymakers and academics meet once a year.
(Additional reporting by Gene Ramos and Janet McGurty in New York, Claire Milhench in London and Seng Li Peng in Singapore; Editing by Andrea Evans, Dale Hudson and David Gregorio)