Oil Rebounds Towards $105 from 9-month Closing Low

Brent crude oil rose towards $105 a barrel on Wednesday, bouncing from its lowest close in nine months, after industry data showed a large drop in U.S. crude stocks last week.

Investors have become increasingly nervous about weak seasonal demand and poor refinery margins in a global market that is well supplied with high quality, light crude oil.

"The weakness comes from speculative length, good supplies of crude and a period of weak demand in the northern hemisphere," said Christopher Bellew, a broker at Jefferies Bache in London.

Brent crude oil was up 20 cents to $104.81 a barrel by 1300 GMT, after settling on Tuesday at its lowest since Nov. 7.

U.S. crude for September delivery rose 2 cents to $97.40 a barrel, after falling as low as $97.00 on Tuesday, its weakest since early February.

Oil prices have fallen more than $10 a barrel over the past six weeks. Global supply has been running ahead of demand, creating a glut in the Atlantic Basin and Asia.

But demand in the United States continues to be strong.

Crude inventories in the United States fell by 5.5 million barrels to 363.9 million barrels in the week to Aug. 1, data from industry group American Petroleum Institute showed on Tuesday. Analysts polled by Reuters had expected a decrease of 1.7 million barrels.

U.S. government data from the Energy Information Administration (EIA) is due at 1430 GMT.

Investors will study the EIA figures closely for news of supplies at Cushing, Oklahoma, the delivery hub for U.S. futures. Stocks there have fallen close to minimum operating capacity.

The drop in U.S. inventories came after upbeat U.S. economic data this week that included a spike in service-sector activity to a nine-year peak and a surprisingly large increase in factory orders, possible signs of better oil demand to come.

Bellew said he expected the market to consolidate with Brent between $104.50 and $105.50 a barrel.

"The fact that it doesn't continue downwards is because of uncertainty over supplies out of Libya, possible threats to Iraqi production and general geopolitical risk," he said.

In Iraq, Kurdish forces clashed with Sunni Islamist fighters near Iraqi Kurdistan's capital Arbil, just days after militants defeated the Kurds with a rapid advance through three towns.

In Europe, around 20,000 Russian troops gathered on Ukraine's eastern border and NATO warned Moscow might use the excuse of an humanitarian or peacekeeping mission to send its forces into Ukraine.

(By Jack Stubbs, Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by Christopher Johnson and Jason Neely)