Oil rebounds to $81 a barrel, prices pare gain as IEA sees adequate supply

Oil rose to $81 a barrel on Friday, rebounding after two days of declines, though prices pared gains after another closely watched forecaster deemed supply adequate and the outlook for demand weakening.

Crude was still heading for its first weekly drop in five weeks, pressured by a big rise in US inventories and fading concerns that looming US sanctions on Iran will cut supplies significantly.

A monthly report by the International Energy Agency (IEA) said the oil market looked "adequately supplied for now" after a big rise in production and trimmed its forecasts for world oil demand growth this year and next.

"This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data," said the IEA, which advises industrialised countries on energy policy.

International benchmark Brent crude rose 76 cents to $81.02 a barrel by 0830 GMT, having dropped by 3.4 percent on Thursday. US crude added 71 cents to $71.68.

Brent is still on course for a 3.7 percent decline this week, the biggest weekly fall in about four months.

Oil found support from figures showing that China's daily crude imports in September hit their highest since May and from a rebound in equities. A drop in equities amid wider risk-off investor sentiment had pressured crude on Thursday.

Still, the IEA report is the latest government assessment to predict weaker demand ahead and conclude that supply is adequate. The Organization of the Petroleum Exporting Countries (OPEC) made a similar move on Thursday.

"The bearish alarm bells are ringing for next year's oil balance as market players brace for the return of a supply surplus," said Stephen Brennock of oil broker PVM.

A drop in US oil production also lent prices some support. In the US Gulf of Mexico, companies cut output by 40 percent on Thursday because of Hurricane Michael, even as some operators began returning crews to offshore platforms.

Michael made landfall in Florida on Wednesday as the third most powerful hurricane to strike the US mainland, though it has since weakened to a tropical storm.