Crude futures rose on Thursday, rebounding from the previous session's slump as investors fretted about potential disruptions to Middle East oil supplies after talks between world powers and Iran over its nuclear program ended with no agreement.
After seeming conciliatory before the Baghdad talks, Iran insisted on its right to nuclear fuel enrichment. Another meeting was set for June, suggesting the situation is fluid and prompting caution by oil investors. Trading volume was light and prices remained substantially below their highs for this year.
"We are seeing a repeat of Iran's normal tactics -- it extends an olive branch but in talks later, nothing happens, and this is muddling the oil markets," said Kyle Cooper, managing partner at IAF Advisors in Houston, Texas.
For weeks, oil markets have been balancing risks of supply disruptions from Iran against the possibility that demand will slump due to slowing global economic growth with the impact of the euro zone debt crisis weighing heavily.
Fears that Greece may leave the euro zone kept buyers cautious about bidding up oil prices too high. Weak economic data from China, Europe and the United States also fed jitters about the shaky global economy.
In China, factory output faltered in May, according to official data, as export orders fell to two-month lows, pointing to sluggish economic activity in the first half of the year and denting the outlook for oil demand.
The euro zone sunk further into the doldrums this month as new factory orders shrivelled, forcing companies to run down backlogs and slash workforces, surveys showed.
Demand for long-lasting U.S. manufactured goods rose less than expected in April while weekly jobless claims dipped only modestly, adding to worries about the economy of the world's largest oil consumer.
In London, Brent July futures settled at $106.55 a barrel, gaining 99 cents, after touching a session high of $107.25. Prices were up early before weak Chinese and European economic data sparked selling.
The contract fell as low as $105.03, the weakest intraday price since Dec. 20 -- down 17 percent from its 2012 high of $128.40 struck on March 1.
U.S. crude for July closed up 76 cents at $90.66 a barrel, after climbing to an early high of $91.52. On Wednesday, it settled at $89.90, the lowest close for front-month U.S. crude since Oct. 21. U.S. crude is down about 18 percent from its 2012 high of $110.55, also hit on March 1.
Brent's premium against West Texas Intermediate U.S. crude widened to $15.89, from $15.66 in the previous session , in a delayed reaction to Wednesday's U.S. government data showing that crude stockpiles at the Cushing, Oklahoma delivery hub rose to another record.
Reflecting investor caution, volumes were light, with Brent trading down 26 percent from its 30-day average and U.S. crude dealings 37 percent lower than the 30-day average, according to Reuters data.
IRAN, GREECE SCENARIOS
Iran accused world powers of creating "a difficult atmosphere" that hindered negotiations on its atomic energy program, stalling diplomatic work to defuse fears of an Iranian attempt to develop nuclear bombs.
Iranian chief negotiator Saeed Jalili later insisted that Iran should have the right to nuclear fuel enrichment, adding that peaceful nuclear energy is the right of every nation.
After two days of inconclusive discussions, new talks will take place o n J une 18-19 in Moscow to try to solve the long-standing dispute about Iran's nuclear program that caused tensions between Tehran and the West to lift oil prices to the year's high of more than $128 for Brent crude. [ID:nL5E8GOGH5
"The market is now betting on Iran hardening its stance again," said Tamas Varga, analyst at brokers PVM Oil Associates in London. "Given the Greek crisis, however, any rally should be fairly short-lived."
That situation has kept oil investors at a quandary on whether to buy back positions after recent sell-offs had left oil markets on both sides of the Atlantic in an oversold condition.
"Crude looks oversold but ... there is going to be some caution ahead of the long weekend, the thought being who wants to go home short," said Richard Ilczyszyn, chief market strategist at iitrader.com in Chicago.
The rebounds on Thursday put the relative strength index of Brent and U.S. crude at around 28, from 23 on Wednesday, according to Reuters data, still below the 30 mark that signals oversold status.
The euro edged up from near two-year lows against the dollar as investors consolidated bearish bets on the common currency ahead of the long U.S. holiday weekend. But any bounce was likely to be fleeting as the market weighs the possibility of Greece exiting the euro zone.
"The overriding factor in the market remains to be whether a Greek default will cause another credit crisis and contagion across Europe," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
Americans take to the road in force beginning this weekend to mark the U.S. Memorial Day holiday, with 30.7 million people expected to take long trips to kick off the summer driving season, up from 30.3 million a year ago.