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Oil back over $90 after hitting 18-month low

Oil rebounded above $90 a barrel on Friday after hitting an 18-month low but remained on course for a weekly loss of nearly 8 percent as reports suggesting slowing economic growth around the globe signalled weaker demand.

A downgrade of the credit ratings of 15 of the world’s biggest banks by ratings agency Moody’s to reflect the risk of losses they face from volatile capital markets activities also weighed on commodities and equities.

Brent crude fell to $88.49, the lowest since December 2010, before reversing course to trade at $90.18, up 95 cents, at 1139 GMT.

A closely watched technical indicator, the relative strength index, for Brent has dropped to 18, suggesting prices are oversold and a rebound may be due. But in general, the technical picture contains few bright spots, said one analyst.

The price of Brent has fallen by 7.7 percent this week and has slid by about 30 percent from its 2012 high of $128.40 reached in March. The weekly drop is on course to be the biggest since the week to June 3.

Reports this week showed US factory output grew at its slowest pace in 11 months in June, business activity across the euro zone shrank for a fifth straight month and Chinese manufacturing contracted for an eighth month.

Supply strong

As the economic outlook darkens, oil supply is ample. The Organization of the Petroleum Exporting Countries is pumping about 1.6 million barrels per day (bpd) more than the demand for its oil and its own supply target, OPEC figures show.

Much of the extra oil has come from top exporter Saudi Arabia, which made clear it was unhappy with the surge in prices earlier this year, as well as from an export capacity expansion in Iraq and a recovery in Libyan output.

OPEC agreed at a meeting last week to keep its oil output limit at 30 million bpd, and several in the group called on Saudi to cut back supplies to bring collective output down to the target level.

There are signs of lower Saudi output already. Saudi Arabia told OPEC it trimmed output in May to 9.8 million bpd from 10.1 million bpd - the highest in decades - in April.

The leaders of Germany, France, Italy and Spain will meet in Rome later in the day in an attempt to restore confidence in the euro zone ahead of an EU summit in Brussels next week.