Oil steadied on Tuesday after the previous session's near 5 percent slide, supported by a rebound in equity markets and expectations for a fifth weekly drop in U.S. crude inventories.

The supply and demand picture remained healthy, some analysts said, a day after crude posted its biggest percentage loss since January 4 as concern about the U.S. economy hit financial and commodity markets.

We do not see the recent price moves as indicative of any need for a reassessment of oil-market fundamentals, but rather a healthy correction, said Kevin Norrish of Barclays Capital. The move up to almost $80 was overdoing it.

U.S. crude (CLc1: Quote, Profile, Research) was down 10 cents at $71.96 a barrel by 1432 GMT. Brent crude (LCOc1: Quote, Profile, Research) gained 39 cents to $71.56.

Oil has fallen 9 percent from a record high of $78.77 reached on August 1, pressured in part by weak U.S. economic data. Slower growth in the United States, the top energy consumer, would hit demand.

Sentiment was mixed in other markets. European shares advanced 0.9 percent, while U.S. stocks fell after data showing a higher-than-expected rise in a measure of labor costs in the second quarter.

In oil, speculators who boosted net long positions, or bets prices will rise, on the New York Mercantile Exchange to a record the previous week have been among the biggest sellers, say traders.

Net speculative long positions stood at 237 million barrels last Friday and investors may have sold the equivalent of about 85 million barrels, according to Goldman Sachs.

A drop in net speculative length to 85 million barrels could knock up to $10 to $12 a barrel from the price of U.S. crude, Goldman said.

Further liquidation could cause (U.S. crude) prices to drop by another $5 a barrel, the bank said in a research note.


Oil remains up from about $50 in January due to real and threatened disruptions to crude oil supply, constraints at oil refineries, resilient demand and a flow of investor money into commodities.

The reluctance of the Organization of the Petroleum Exporting Countries, which began curbing supply late last year, to increase crude output has limited price declines.

OPEC officials have indicated the group will not raise output when ministers meet to review policy on September 11, fuelling concern of a supply crunch during the peak of winter heating demand.

Wednesday's weekly snapshot of supplies in the United States is expected to show a fifth straight drop in crude stockpiles.

U.S. crude inventories are expected to have fallen by 2.3 million barrels last week, a preliminary Reuters analyst poll showed on Monday.

Distillate supplies were expected to rise by 1.6 million barrels. Gasoline inventories were forecast to rise by 900,000 barrels.

The U.S. Energy Information Administration releases its report Wednesday at 10:30 a.m. EDT.

(Reporting by Alex Lawler and Fayen Wong)

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