Oil was steady above $73 on Thursday after spiking two percent the previous day on an unexpectedly large drop in crude and gasoline stocks in top consumer the United States.
But prices handed back early gains as stock markets retreated. U.S. crude was up five cents at $73.56 a barrel by 7:51 a.m. EDT, having jumped $1.78 on Wednesday to its highest settlement in over three weeks.
London Brent crude was up four cents at $72.17.
Crude oil stocks in the United States fell by a deeper than expected 3.5 million barrels in the week to August 24 after storms in the Gulf Coast delayed imports, the Energy Information Administration reported on Wednesday.
Gasoline stocks dropped 3.6 million barrels, bringing them to a record low of just 20 days of supply.
U.S. crude stocks are 10 percent above the five-year average for the time of year. But some analysts forecast global supply could struggle to keep pace with demand unless the Organization of the Petroleum Exporting Countries raises production.
DEMAND GROWTH SEEN QUICKENING
A Reuters poll of 21 analysts projected world oil demand growth would almost double to 1.41 million barrels per day this year and quicken to 1.56 million bpd in 2008.
Demand for OPEC oil was seen rising to 31.66 million bpd in 2008 from 31.23 million bpd this year, the poll found.
That compares with August output of 27.03 million bpd for the 10 OPEC members subject to quotas -- all except Iraq and Angola -- according to Conrad Gerber of tanker tracker Petrologistics. He put total OPEC output at 30.7 million bpd in August.
Notwithstanding the potential for a global credit crunch to erode oil demand growth, we maintain our base case view that the market remains fundamentally well supported by non-OECD demand growth and production restraint by OPEC, a Goldman Sachs JBWere Investment Research report said.
OPEC officials have repeatedly said the market is well supplied, and put part of the blame for high prices on a lack of fuel supplies from consumer nation refineries.
We continue to see a progressive erosion in crude stock going forward on weaker imports ahead, be it due to lower procurement or OPEC supply cuts, said Harry Tchilinguirian, senior oil market analyst at BNP Paribas.
Oil has held up well compared to other commodities, but the U.S. benchmark has fallen from an all-time high of $78.77 on August 1 as some investors worry that a global credit crunch will take its toll on the wider economy and erode oil demand.
MF Global Energy Group analyst Edward Meir cautioned against reading too much into the latest U.S. gasoline data.
Despite the hand-wringing, we would not get too concerned about gasoline right now, as refineries are shifting production to heating oil and distillates, both of which are starting to build, he said.
Let's not forget gasoline imports either; these will continue to play an important role in the U.S. energy equation. Moreover, the U.S. driving season is officially ending after one last hurrah this coming weekend.