Oil bounced back towards $70 today after touching a ten-week low yesterday before, halting a steep two-day slide as traders looked ahead to an expected decline in US crude and gasoline stocks and fretted over Iran.
US crude for October delivery rose 27 cents to $69.98 a barrel by 0219 GMT after losing 3.9 per cent over the previous two days as Tropical Storm Ernesto veered away from key oil production infrastructure in the US Gulf Coast.
London Brent crude rose 20 cents to $70.06, having tumbled from a record high of $78.65 just three weeks ago.
Focus later today will shift to US inventory data which is likely to show some thinning supplies, though the supportive effect may be diminished by concerns about the strength of the US economy in the face of weakening consumer confidence.
Oil traders are also on alert for escalating tension between OPEC producer Iran and the West as tomorrow's UN Security Council deadline for Tehran to suspend nuclear enrichment nears.
Iran, the world's fourth-largest oil exporter, showed no signs of succumbing to pressure yesterday, as President Mahmoud Ahmadinejad dismissed the threat of sanctions that dealers fear could trigger a cut in its oil supplies.
"Peaceful nuclear energy is the right of the Iranian nation ... it wants to use it and no one can stop it," he told a news conference.
Still, traders were not expecting immediate action, as Russia and China remain hesitant over any punitive measures against Tehran and Britain's UN ambassador said further discussion on Iran was expected only in mid-September
Ernesto, the 2006 Atlantic hurricane season's fifth storm and briefly its first hurricane, made landfall in the upper Florida Keys yesterday, deteriorating into a weak storm and set to proceed up the eastern seaboard.