January 19, 2012 / 11:05 IST
By Simon Falush
LONDON (Reuters) - Oil retreated on Wednesday as optimism spurred by talk the IMF may do more to help resolve the European debt crisis proved shortlived, with a gloomy demand outlook pressuring prices.
Front-month Brent crude was down 40 cents at $111.13 a barrel by 1432 GMT, after touching an intraday peak of $112.20. U.S. oil gained 46 cents $101.17 a barrel.
Brent futures hovered in backwardation, just above parity, as prompt oil was priced comparably to forward futures, illustrating weaker demand at the front of the curve.
"The market is soft, the Brent curve is flirting with contango and the distillate market is being crushed, with heating oil margins in the United States collapsing," said Seth Kleinman, analyst at Citigroup.
"We've lost a lot demand from warm temperatures."
Oil was supported by weakness in the dollar, as oil priced in the U.S. currency becomes more affordable to holders of other units as it falls.
The International Monetary Fund is estimating it needs to raise up to $600 billion in new resources to lend to countries struggling with the fallout from the euro zone debt crisis, IMF sources said on Wednesday.
Media reports earlier in the session that there would be extra support from the IMF gave riskier assets like oil and equities higher, but the effect proved short-lived.
International creditors are set to meet the Greek government to resume the talks that broke down last week over the interest rate Greece will offer on new bonds and a plan to enforce investor losses.
LOWERED FORECASTS
However forecasts pointing to weak oil demand also helped depress prices.
Oil demand is falling for the first time since the global economic crisis of 2008-2009, the International Energy Agency said, warning that mild weather, high oil prices and a rising likelihood of a global recession will depress demand in 2012.
World oil demand will rise by 18 percent from 2010 levels to 103 million barrels per day (bpd) by 2030, making it the slowest-growing fuel in the next 20 years, oil giant BP said.
Prices were supported by supply threats from the Middle East due to escalating tensions over Iran's nuclear programme. The West is trying to isolate the Islamic Republic by imposing tougher sanctions and pressing top oil consumers from halting purchases of Iranain barrels.
The European Union would ban the import of Iranian oil from July 1, giving member states nearly six months to wind up existing contracts, under a proposal by rotating EU presidency holder Denmark, EU diplomats said on Tuesday.
However, indicating the situation would not soon spiral into military conflict, Israel's Defence Minister Ehud Barak said on Wednesday any decision about an Israeli attack on Iran was "very far off" and Russia said an attack on Iran would be a "catastrophe".
Another factor weighing on prices is expectations of a build up in crude stockpiles in the United States for the fourth straight week on strong imports.
On average, domestic crude inventories were forecast up 2.8 million barrels, according to the poll of six analysts, who all predicted builds for the week to January 13.
Data will be delayed by a day this week due to a holiday in the United States on Monday, with the American Petroleum Institute numbers due later in the day followed by the U.S. Energy Information Agency on Thursday.
(Additional reporting by Manash Goswami in Singapore; editing by Keiron Henderson)
