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London: Oil retreated on Thursday, after an early bounce, pressured by bearish data on the economy in top energy consumer the United States.
US light crude for September was down $2.32 at $124.45 a barrel by 1408 GMT, after a jump of $4.58 on Wednesday. London Brent crude was $2.95 down at $124.15 a barrel.
An unexpected jump in US weekly jobless claims put pressure on the US dollar, which briefly caused oil to make further gains yesterday, but these proved short-lived. Oil has tended to rise when the dollar falls and vice versa, but this pattern has shown signs of breaking down recently.
US gross domestic product grew at a 1.9 per cent annual rate in the second quarter, lower than expected, which added to concerns over the health of the US economy..
Oil had rallied strongly on Wednesday after a surprise fall in gasoline stocks last week in the US. This followed a fall of about 18 per cent from the market's record peak above $147 on July 11, partly due to concerns over demand erosion, especially in the US.
This was the biggest drop on record in dollar terms.
Demand destruction
"There was a gasoline-led rally, but now I think it's running out of puff. It seems to need constant bullish news at the moment to push it up," said Christopher Bellew, of Bache Commodities. "Everyone is talking about demand destruction."
Oil's six-year advance has been driven partly by strong demand growth from emerging economies such as China, India and the Middle East that could tighten the market's supply/demand balance over the long term. Investors have piled into oil and other commodities as a hedge against inflation and as a more attractive play than bearish equity markets.
The weak US dollar has also contributed to oil's record run as it is priced in the US currency.
Analysts are not yet convinced that the sharp fall this month means the bull market in oil is over.
"Although oil prices have fallen around $20 from their peak, support at $120 held and that means there is the potential for prices to rise back to record levels again," said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd in Tokyo.
Analysts who track the market's movements on charts are waiting to see if the price can continue to hold above the $120 a barrel level.
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