Oil was little changed above $125 a barrel on Friday after short-covering a day ago helped stem a nearly two-week dive, but analysts said lingering demand worries made further gains ahead of the weekend unlikely.

Concerns that high prices and a weaker U.S. economy will undermine demand have driven oil down more than $20 from a record peak above $147 a barrel set earlier this month, but technical trading and a short-covering bounce helped prices on Thursday.

U.S. light crude for September delivery <CLc1&gt; edged down 7 cents to trade at $125.42 a barrel by 0114 GMT after gaining $1.05 a barrel a day ago, recovering from a seven-week low.

London Brent crude <LCOc1&gt; rose 3 cents to $126.47 a barrel at the same time.

“Since the source of much of the selling of the past 1- weeks has been the heightened attention to demand deterioration, we look for this market to place greater emphasis on sharp stock market sell-offs than curency movements going forwards,” said Jim Ritterbusch, president of Ritterbusch & Associates.

U.S. stock markets fell by 2 percent or more a day ago after news of another drop in U.S. home sales, adding to the gloom surrounding the outlook for the world’s top oil user. [.N]

“All in all, we don’t necessarily anticipate a short-covering rally (today) ahead of the weekend given the bearish momentum that remains intact,” Ritterbusch said, adding he expected crude could drop as low as $117 within about a week.

Some analysts say the price drop in oil and other commodity markets since mid-July has been driven by some traders unwinding short-dollar/long-oil positions, which have also helped lift the U.S. currency to a one-month high against the yen.

Bearish stock data on Thursday coupled with mild weather forecasts drove natural gas prices down 5 percent, in turn weighing on oil, traders said. [ID:nN24550350]

Tropical Storm Dolly, which was the Atlantic season’s second hurricane, was scratched off the market’s agenda as it moved moved inland across South Texas, having barely put a tend in crude oil, natural gas and fuel output. [ID:nN24490901]

Even after the recent price fall, oil has still rallied by almost 30 percent in 2008 and is up six-fold from 2002 due to demand from growing economies like China.

The U.S. Senate will vote on Friday on a Democratic bill that seeks to curb excessive speculation in the energy markets. But Republicans said they had the votes to block passage. [ID:nN24445645]

Source: http://www.afxnews.com

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