Brent oil extends slump to 2-year low; U.S. crude bounces

By Robert Gibbons

NEW YORK (Reuters) - Benchmark Brent crude dropped to a two-year low on Thursday, falling for a sixth straight session as increasing supply and signs of weakening demand countered worries that conflicts in the Middle East could curb output.

Oil prices fell in tandem early in the day, but U.S. futures broke higher during morning trade in New York after triggering technical support levels. Its sharp rebound from a 16-month low lowered Brent's premium over U.S. crude to a little more than $5 a barrel, its smallest since July.

Some traders linked the bounce in U.S. crude to news that Russia said air strikes against Islamist militants in Syria without a U.N. Security Council mandate would be an act of aggression.

"Russia's comments may slow the president's plan on getting rid of (the Islamic State militants) and could keep Iraq's production slowed or in danger," said Phil Flynn, analyst at Price Futures Group in Chicago.

Others said the bounce was a sign that markets may be oversold after Brent slid more than 5 percent in six days.

Brent for October was down 66 cents at $97.38 a barrel at 11:38 a.m. EDT (1538 GMT) It fell as low as $96.72, its weakest since July 2012.

U.S. crude was up 35 cents at $92.17 a barrel, turning higher after sliding to $90.43, its lowest since May 2013.

Brent hit a high above $115 in June as Islamist insurgents swept across northern Iraq, taking control of several oilfields, but prices have now fallen more than 15 percent from their highs as supply from other countries has increased and demand has remained tepid.

The West's energy watchdog said on Thursday slowing global economic growth, particularly in China and Europe, had curbed oil demand severely at a time when supplies were growing steadily, particularly from North America.

"The recent slowdown in demand growth is nothing short of remarkable," the International Energy Agency (IEA) said in a monthly report, cutting its oil demand growth projections for 2014 and 2015.

The IEA expects non-OPEC supply to expand by 1.6 million barrels per day (bpd) in 2014, and by another 1.3 million bpd in 2015, thanks mainly to the North American shale oil boom.

That means the world will need less oil from the Organization of the Petroleum Exporting Countries, and the IEA cut its estimate of demand for OPEC crude and stocks for 2015 by 300,000 bpd to 29.6 million bpd.

President Barack Obama said on Wednesday he had authorized U.S. air strikes for the first time in Syria and more attacks in Iraq, escalating a campaign against the Islamic State militant group.

Syria also warned that foreign intervention not approved by Damascus would be an act of aggression.

(Additional reporting by Christopher Johnson in London and Keith Wallis in Singapore; editing by Dale Hudson and Keiron Henderson)