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Oil prices higher in Asian trade

In afternoon trade, New York's main contract, light sweet crude for September delivery, was 73 cents higher at 126.22 dollars a barrel from 125.49 dollars at the close of trading Thursday on the New York Mercantile Exchange.

Brent North Sea crude for September delivery rose 52 cents to 126.96 dollars after settling at 126.44 dollars in London on Thursday.

Both contracts rose by more than one dollar on Thursday following a tumble of about four dollars the previous day. Analysts said a bigger-than-expected increase in US gasoline reserves signalled weaker demand in the United States, the world's biggest energy consumer.

Ken Hasegawa, manager of the energy desk at Newedge Japan brokerage, said the market had ‘calmed down’ and would trade in a short-term range of 123-128 dollars.

‘So far, there is no special news in the market,’ he said.

Crude oil prices shot to a series of record highs earlier this year, partly because of political tensions involving oil-producing nations like Iran, which refuses major powers' demands to halt its nuclear programme.

Prices have tumbled since peaking above 147 dollars a barrel on July 11.

Falling demand growth for oil has cooled the market, Hasegawa said. Overall demand is still growing -- providing some support -- but the rate of increase has slowed, he said.

For Alaron Trading analyst Phil Flynn, the bears are coming out of hibernation after months of sizzling price rises.

‘The myth that emerging market demand would totally offset the loss of US demand is now being shattered. Price still matters to the demand side of the equation and eventually that will always be the great equaliser in a bull market,’ Flynn said.

Uncertainties, including tensions between the West and Iran, continue to provide underlying support to the oil market, Hasegawa said, forecasting a medium-term price range of 120-130 dollars a barrel.

Prices broke through 100 dollars a barrel for the first time at the start of the year.