Oil up on bargain hunting even as political risks ease

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Oil prices rose on Thursday, despite easing political worries and an improving supply picture, as traders sought bargains after sharp losses earlier this month.

Brent oil gained 67 cents to $108.99 a barrel by 1204 GMT, after slipping to $108 earlier in the session.

The benchmark is still down 4.4 percent so far in September, on track for its biggest monthly fall since April. It is down nearly $8 from its peak earlier in the month as fears about escalating conflict in the Middle East have faded.

U.S. crude futures added 4 cents at $102.70 a barrel.

"Everything else points to lower prices, but sometimes in situations like this the opposite happens, and people close short positions and look for bargains after a big downward move," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

Iran's new government said on Wednesday it wanted to jump-start talks with world powers to resolve a decade-long dispute over its nuclear programme and hoped for a deal in three to six months.

This pushed oil down in late trading in New York on Wednesday after earlier strength.

"I think it was oversold last night on the back of Iranian comments," a trader said.

Iranian Foreign Minister Mohammad Javad Zarif is set to hold talks on the nuclear issue on Thursday with U.S. Secretary of State John Kerry as well as diplomats from Britain, France, Russia, China and Germany.

The West's standoff with Iran over the OPEC member's nuclear program has helped support oil prices for nearly a decade. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day.

An impasse over the U.S. government budget and weak lending data in the euro zone also kept enthusiasm in check for risk-sensitive assets such as oil.

FUNDAMENTALS PRESSURE

The demand/supply balance was also capping prices, analysts said.

"With weaker fundamentals still ahead, oil prices (are) likely to remain under pressure," Morgan Stanley analysts said in a note on Thursday.

Supply was recovering from Libya, and bigger U.S. stockpiles were putting pressure on prices.

Oil inventories in the United States rose 2.6 million barrels to 358 million barrels last week, which helped push U.S. crude oil futures lower immediately after the U.S. Energy Information Administration released the data.

The data also showed U.S. exports of refined products last week reached the highest level on record at 3.4 million barrels per day, 17.5 percent higher than a year ago, as refineries processed crude at high rates.



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