Oil steady after US oil stocks drop, demand outlook weighs

Brent crude fell on Thursday, trading below $123 a barrel on concern about the impact of high prices on demand, although continued unrest in the Middle East and a sharp fall in U.S. gasoline stocks limited losses.

Brent crude for May fell 38 cents to $122.50 a barrel by 0430 GMT while U.S. May crude rose 8 cents to $107.19 a barrel.

The world's largest economy and biggest fuel user continued to improve in the last month, but firms were feeling the impact of higher costs of energy and raw materials, the U.S. Federal Reserve said on Wednesday.

Rising U.S. gasoline prices have damaged confidence in the country's future and forced Americans to adjust spending habits and lifestyles, a Reuters/Ipsos poll found.

Economic growth is fuelling the rise in commodity prices, in turn leading to growing concern that high costs for raw materials could stunt growth and with it fuel consumption.

The International Energy Agency and the International Monetary Fund both warned this week expensive crude could erode demand.

Analysts are divided on the impact so far.

Demand destruction has "probably just started, but it doesn't look like it is going to be that big a deal," said Michael Lo, a Hong Kong-based analyst at Nomura International.

"We're going through a phase of economic growth so I don't expect high oil prices to hit GDP that much."

CHINA

The world's second-largest oil consumer will release first quarter GDP and March consumer price data on Friday.

Markets will be watching the data closely for any sign of a slowdown in demand from China, which has driven the growth in global fuel consumption for the last decade.

"People are already forecasting a slowdown in China but the growth is still there," Lo said.

The data may also may signal what China's next move will be on monetary tightenting. Beijing on Wednesday vowed to use all tools at its disposal to fight inflation, heightening fears of more measures to cool the speed of growth that could crimp fuel demand.

As a prelude to the GDP data on Friday, China reported strong electricity output growth in March as the country heads into peak summer demand.

LIBYA

Libyan rebels are exporting a "minimum amount" of crude from its fields which are pumping around 100,000 barrels per day (bpd), less than a tenth of the country's usual production at 1.6 million bpd.

JPMorgan said supply is unlikely to rise significantly unless a resolution to the conflict is reached.

"Until then we expect exports to remain low and fluctuate widely, as we have seen in the past in conflict areas," analysts led by Lawrence Eagles said in an April 13 note.

U.S. GASOLINE STOCKS DOWN

U.S. gasoline inventories fell 7 million barrels last week to their lowest level since October last year, data from the U.S. Energy Information Administration showed.

The weekly fall was the biggest since October 1998 as refineries clear out winter grade gasoline ready for summer blends, and undertake maintenance ahead of the peak holiday driving season.

US crude stocks rose for a sixth straight week by 1.6 million barrels to 359.3 million barrels.

"Total gasoline stocks are approaching the five year average and are below 2010 levels," JPMorgan analysts said.

"The build in crude and draw in products points to continued refinery maintenance in the US, as the spring turnarounds wrap up," they said, adding that unplanned outages also reduced run rates.