Oil rebounded as much as 0.7 percent to top $74 on Monday on a weaker dollar, but prices stayed close to last week's six-week lows on a combination of lackluster economic indicators, rising risk aversion and a lack of hurricane activity in the Gulf of Mexico.
U.S. crude for delivery in October, the front-month contract from Monday after September went off the board on Friday, climbed as much as 48 cents to $74.30 a barrel and was up 33 cents at $74.15 by 0527 GMT (1:27 a.m. EDT), while October ICE Brent gained 32 cents to $74.58.
Front-month crude ended last week at the lowest level since early July, after prices touched a Friday intraday low of $73.19. Prices have fallen more than 10 percent from an August 4 high of $82.97. For now, traders and analysts say, a rally may only be triggered by hurricane-related disruptions to output or refining.
When we enter the hurricane season the market builds up a premium, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. The lack of weather is providing us with a little bit of an increase in supply, as inventories continue to build.
Tropical Storm Danielle formed over the mid-Atlantic on Sunday and could become a hurricane by Tuesday night, the U.S. National Hurricane Center said, but it was headed for Bermuda, posing no threat to oil and gas infrastructure in the hydrocarbon-rich Gulf of Mexico.
HURRICANE SEASON SPUTTERING
Although forecasts are for the Atlantic hurricane season to be the most active in five years, no threatening storms were in sight as the period of peak activity between mid-August and mid-October kicked off. Only four storms have so far gained enough intensity to be named, versus 11 at this stage in the destructive 2005 season.
Hurricane Katrina, which in 2005 became the worst storm for the U.S. offshore oil industry, devastated platforms, pipelines and rigs as it cut across the Gulf in the last week of August.
Investors' interest in oil also diminished last week. Money managers cut net long crude oil positions on the New York Mercantile Exchange to less than 109,000 in the week through August 17 from almost 129,000 a week earlier, the Commodity Futures Trading Commission said on Friday.
Oil prices this year have traded in a $64.24-$87.15 range, as recovering energy demand has been insufficient to drain ample supplies. U.S. total petroleum stockpiles climbed to a record since weekly records began in 1990 in the week ended Aug 13, according to government and industry data.
Oil is going to try to find a bit of a base here, Barratt said. The market has to factor in some sort of stimulus packages. If governments started supporting the economy, they will have to continue.
Last week's economic reports included data showing U.S. jobless claims hit a nine-month high and U.S. regional manufacturing contracted for the first time in a year, reviving fears of a double-dip recession in the world's largest economy.
Adding to economic jitters, a measure of future U.S. economic growth fell to a three-week low, the Economic Cycle Research Institute said on Friday. U.S. gross domestic product for the second quarter will be published Friday this week.
Lingering fears about economic growth drove world stocks to a one-month low on Friday, while boosting the safe-haven appeal of U.S. government bonds and the U.S. dollar. The greenback weakened 0.15 percent against a basket of currencies on Monday, while Japan's Nikkei average slipped.
Iran unveiled a prototype long-range unmanned bomber on Sunday, the latest in a stream of announcements of new Iranian-made military hardware as tension mounts over its nuclear programme.
(Editing by Manash Goswami)