Oil near $120 on Turkey oil pipeline blast

By Felicia Loo

SINGAPORE (Reuters) - Oil held below $120 a barrel on Friday, rebounding from three-month lows due to an attack on a 1 million barrel per day pipeline in Turkey, but bearish demand sentiment prevailed.

U.S. light crude for September delivery dropped 32 cents to $119.70 a barrel by 7:22 a.m. British time, while London Brent crude ticked down 23 cents to $117.63 a barrel.

Oil ended $1.44 higher on Thursday, as the Baku-Tbilisi-Ceyhan (BTC) oil pipeline was still ablaze after Tuesday night's explosion. The oil link pumps more than 1 percent of world supply from fields in the Azeri sector of the Caspian Sea to the Turkish Mediterranean coast.

While supply disruptions in Turkey lent support, traders' focus was largely on concerns over faltering demand in the United States and Europe that knocked prices off a July 11 record of $147.27 a barrel.

"Prices have fallen from an extraordinary high level and demand's going to ease further. There are signs of China slowing their fuel imports after the Olympics," said Mark Pervan, commodities analyst at ANZ Bank in Melbourne.

While China is likely to buy less diesel and gasoline in the post-Olympics period, energy consumption in the world's top consumer, the United States, is expected to erode further due to a burgeoning pool of the unemployed.

The number of U.S. workers filing new claims for jobless benefits rose 7,000 last week to the highest level in more than 6 years, government data on Thursday showed, amid a heavier build in crude oil and distillate stockpiles that suggested weakening oil demand in an ailing economy.

Other factors include a dollar turnaround, with the dollar index hitting its highest in more than five months that prompted funds to exit commodities albeit mildly.