Oil edges higher after early drop

Oil edged up nearer to $38 a barrel on Thursday after an early $1 fall, but more glum figures from world markets put a cap on further gains, reported Reuters.

Global economic data's grim showings yesterday had lead oil lower, with Asian shares following their U.S. counterparts down to a 5-week low on weak U.S. retail sales data and a record fall in Japanese machinery orders.

U.S. light crude for February delivery was up 53 cents at $37.81 a barrel by 1106 GMT (6:06 a.m. EST), after having fallen by as much as $1.15 in early session trade.

London Brent crude rose $1.73 cents to $46.81 a barrel on thin volumes in the final day of the front month contract.

"You had an oil market that got a boost at the beginning of the year, partially on holiday consumption, partially on cold weather...but now its back on continuing dismal economic data," said Harry Tchilinguirian at BNP Paribas.

On Wednesday the U.S. Commerce Department said total retail sales fell 2.7 percent last month.

Slowing economic growth means less need for oil, confirmed by figures on Wednesday showing U.S. distillate fuel demand fell to the lowest level in five years, causing inventory to surge by 6.4 million barrels in the week to January 9.

Crude stocks also rose for the third consecutive week, by 1.2 million barrels to 326.6 million barrels, according to the Energy Information Administration.

Supplies at the NYMEX delivery point in Cushing, Oklahoma, were up 800,000 barrels at 33 million barrels, a record storage level at the site.

"An eye-popping 6 million barrel build in diesel at Cushing, which is used in the US for trucking, moving goods to stores, and within the context of weak retail sales really shows the economic slowdown with consumers not shopping," Tchilinguirian said.

Analysts said oil traders will be looking toward U.S. economic indicators due Thursday, including weekly jobless claims and monthly producer price changes, to further gauge how the economy is faring.

Oil was $147 a barrel in July but has toppled as the economic crisis clips global oil demand, with the EIA now forecasting a world consumption drop by more than 800,000 barrels per day (bpd) this year.

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