Brent crude oil consolidated around $112 a barrel on Tuesday as investors weighed a weaker outlook for fuel demand and sluggish economic growth against the risk of possible supply disruptions.
Global economic activity has slowed this year, curbing the growth in fuel demand in Asia, Europe and the United States, but investors are worried an unexpected disruption to supplies from the Middle East or elsewhere could force prices higher.
Brent crude oil futures for November were down 2 cents at $112.17 a barrel by 1335 GMT. U.S. crude rose 14 cents to $92.62.
U.S. manufacturing unexpectedly grew last month for the first time since May but euro zone factories suffered their worst quarter since early 2009 and China lost steam.
"Economic data is bearish for oil and the immediate risk for prices is to the downside," said Tamas Varga, oil analyst at brokers PVM Oil Associates in London.
"But geopolitics is supporting the market. It may be very unlikely, but investors are still worried there could be a war in the Middle East. And, as long as stories about Iranian nuclear operations keep coming, those worries are not going to go away."
Tension between Iran and the West is high with the United States and Europe imposing sanctions on the Islamic Republic in an attempt to stop the development of an Iranian nuclear bomb.
This has removed around 1 million barrels per day (bpd) of Iranian crude oil from the global market and put massive pressure on the Iranian economy.
Iran's rial plunged at least 9 percent to a record low of about 37,500 to the dollar on Tuesday.
The top energy adviser to the Iraqi prime minister said on Tuesday Iraqi oil production was likely to hit 3.4 million bpd by the end of this year, while exports are expected to average 2.9 million bpd in 2013.
These forecasts are considered optimistic by many industry analysts but the rise in Iraqi oil production is going some way towards replacing lost Iranian barrels and has added to ample supplies from other producers.
"There's no supply shortage at all at the moment," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.
An even more unstable Iran would pose risks for the Middle East, the world's most important exporter of oil, but most investors think the chances of war are low, despite bellicose rhetoric on both sides.
Of more immediate concern to markets is the global economic slowdown that has pushed many European countries into deep recession. European manufacturing activity has fallen to levels not seen since early 2009.
Spain could be about to request a euro zone bailout although it could face resistance from Germany, European officials have said, suggesting a solution to the crisis remains elusive.
The debt crisis that began in Greece in 2010 and has spread across the euro zone to engulf Ireland, Portugal, Cyprus and the much bigger economy of Spain has devastated business confidence and sapped the ability of companies to create jobs.
Federal Reserve Chairman Ben Bernanke said on Monday he was confident the U.S. economy would not slip into a second recession, although growth in the world's largest oil consumer was too slow.
Investors awaited U.S. industry data later on Tuesday on the level of fuel inventories.
A Reuters poll of analysts forecast the American Petroleum Institute figures would show a build of 1.5 million barrels in crude stocks last week on expectations of a rebound in crude imports. Gasoline and distillate stockpiles were expected to fall slightly. (Additional reporting by Luke Pachymuthu and Manolo Serapio Jr; Editing by Alison Birrane)