Oil reversed early losses on Wednesday to edge back toward $70 a barrel, after initially falling to the lowest price in August so far on concerns about the strength of demand ahead of weekly U.S. inventory data.
U.S. light crude for September delivery rose 26 cents to $69.71 a barrel by 1048 GMT (6:48 a.m. EDT), having fallen for the previous four sessions. U.S. crude hit a near two week low of $68.84 in early European trade on Wednesday.
London Brent crude fell 9 cents to $72.37.
World oil demand growth will be lower in 2010 than previously forecast, the International Energy Agency (IEA) said in its monthly market report on Wednesday, with any evidence of global recovery still limited.
The Paris-based agency, adviser to 28 industrialized nations, said global oil demand was now seen recovering by just 1.3 million barrels per day (bpd) in 2010, having fallen by 2.3 million bpd this year as the economic crisis curbed consumption. World oil demand hit a peak of 86.5 million bpd in 2007.
Evidence of a bottoming out of the recession is still a bit patchy. The latest data on industrial production for some of the larger countries remains negative, David Martin, analyst at the IEA, told Reuters.
There is not clear evidence yet we have seen the worst.
Falling demand for oil has seen inventories of crude and oil products stack up around the world.
Combined with the impact of a tame U.S. summer driving season, the drawdown in stocks typical of this time of year has not happened. The IEA said stocks in developed countries stood at almost 62 days of forward cover at the end of June.
On Tuesday, weekly stocks data from the American Petroleum Institute (API) showed an unexpected fall of 1.4 million barrels in crude stocks, together with a larger-than-expected 2.3 million barrels fall in gasoline stocks.
The data, released after Tuesday's prices settlement, has provided some support for prices, while the statement from a two-day meeting at the Federal Reserve ending later on Wednesday will be monitored for a steer on the economic outlook.
Today traders will be watching the Fed meeting and the EIA data. The stronger dollar and waning sentiment for equities have been short-term bearish for crude, which has been trading as an asset class recently, said Jonathan Kornafel, Asia director of U.S.-based Hudson Capital Energy.
The EIA, the statistical arm of the U.S. Department of Energy, will release its own weekly snapshot of U.S. fuel inventories at 1430 GMT (10:30 a.m. EDT).
Data from the EIA and API can diverge widely.
An expanded Reuters poll of analysts on Tuesday showed expectations of a 700,000-barrel rise in crude stocks, a 1.3-million-barrel decrease in gasoline stocks and a 200,000-barrel drop in distillates stocks.
Traders will also keep a close eye on the two-day U.S. Federal Reserve meeting that ends later on Wednesday with a statement expected at about 1815 GMT (2:15 p.m. EDT).
(Additional reporting by Maryelle Demongeot in Singapore; Editing by Keiron Henderson)