Oil falls to $113 on bearish global demand

LONDON (Reuters) –

Oil dropped by $2 to $113 a barrel on

Friday to trade near the lowest since early May, pressured by

faltering global demand and rising supply.

Crude has fallen sharply since reaching an all-time high of

$147.27 a barrel on July 11 partly on concern about weakening

demand and fell as low as $112.31, the lowest since May 2, on

Tuesday.

“The demand side is a major concern. Supplies from OPEC

countries are rising but there is a shortage of buyers. The

industrial use in China has been cut back,” said Gerard Burg

from National Australia Bank.

U.S. crude for September delivery fell $2.04 to $112.97 a

barrel by 0818 GMT (4:18 a.m. EDT). The contract will expire on

August 20. London Brent’s new nearby contract, October, lost

$1.77 to $111.91 a barrel.

Supply has been rising as demand ebbs. Output from the

Organization of the Petroleum Exporting Countries rose 145,000

barrels per day in July to 32.8 million bpd, the International

Energy Agency said this week.

Oil also fell as the dollar strengthened following further

proof that the U.S. economic slowdown is spreading. The economy

of 15-nation euro zone contracted 0.2 percent in the second

quarter, data showed on Thursday.

The euro hit a six-month low against the dollar on Friday.

Weakness in the U.S. currency earlier this year had boosted the

appeal of oil and commodities to investors as a hedge against

inflation.

Fighting between Russia and Georgia, a key supply route

from the Caspian to Europe, has lent support to oil. But

analysts said diplomatic efforts to secure a peace accord

reduced the risk of supply disruption.

Russian troops remain deep inside Georgian territory on

Friday, hours before U.S. Secretary of State Condoleezza Rice

arrives to secure Tbilisi’s signature to a peace deal with

Moscow.

“While still a dangerous transitional period, the fact that

diplomacy will now replace military action bodes well,” said

Edward Meir, oil analyst at MF Global, in a report.

(Reporting by Felicia Loo, editing by William Hardy)