Oil edged down below $109 a barrel on Wednesday, shrugging off forecasts of surging global demand from the west's energy watchdog, while the market awaited U.S. data that is expected to show a drop in crude stockpiles.
The International Energy Agency (IEA) revised up its estimates for global oil demand growth on Wednesday, saying in its monthly report that after eight quarters of contraction, oil demand in the world's heavily industrialised countries returned to growth in the second quarter.
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Coupled with a decline in output from OPEC and some supply uncertainties, the IEA saw upside risk for oil prices.
But traders said those forecasts were not enough to push the Brent contract out of the narrow range in which it has traded in the last year, while growing expectations that Libyan barrels will soon return to the market were pressuring prices.
"In the past three days it has fallen from $112 because of news that Libyan supplies might return. We are sanguine about that and not sure the promised oil will arrive," said Gareth Lewis-Davies, senior energy strategist at BNP Paribas.
"There have also been supportive elements: News that OPEC had cut back output and the IEA today was also supportive... Brent seems to be moving up and down looking for direction."
Brent crude oil was down 52 cents at $108.82 a barrel by 1218 GMT, after closing one cent lower on Tuesday.
U.S. crude futures for January delivery were 15 cents down at $98.36, after registering a 1.2-percent rise the previous day.
Brent's premium to West Texas Intermediate (WTI) crude futures <CL-LCO1=R> has fallen nearly $8 since end-November, as changes in pipeline flows may ease a supply glut at WTI's delivery point in Cushing, Oklahoma, while nationwide crude inventories could fall for a second week.
Two new pipelines are set to drain oil from Cushing in the next few months - a 700,000 bpd TransCanada Corp pipeline and a Royal Dutch Shell pipeline to send crude to Louisiana.
"The spread has narrowed too quickly. I think the buying of WTI is overdone," said Yusuke Seta, a commodity sales manager at Newedge Japan.
Crude inventories in the United States were still at the highest in a decade and production was increasing, Seta said.
The EIA will release inventories data later on Wednesday that may show a second weekly drop in crude stockpiles.
Data from the American Petroleum Institute industry group showed on Tuesday that crude inventories fell by 7.5 million barrels in the week to Dec. 6. Analysts had expected a 3-million barrel drop in a Reuters poll.
The API figures had little impact on Brent as traders said the United States has become dislocated from the global market since its shale boom.
Lewis-Davies said he expected Brent to move in line with WTI after the EIA data, with the spread narrowing over time.
Traders are also keeping an eye on the progress of talks between Tehran and six world powers over the implementation of a landmark nuclear deal that could ease sanctions on Iranian oil and increase supply.
"It is range-bound. I see us staying in that range today with about $110.50 a barrel at the upper end and about $109 a barrel at the lower end, maybe $108.75," said Christopher Bellew, trader at Jefferies Bache.
"If anything it will break downwards but there is plenty of speculative length in the market in case the IEA is right."