Oil edges up as weak demand outlook caps gains amidst Middle East worries

Oil prices edged higher on Thursday amid lingering Middle East tensions and after US crude stocks dropped more than expected.

However gains were stemmed by a fragile demand outlook amid more signs of slowing global economic growth.

Brent crude futures rose 17 cents, or 0.27 percent, to $63.35 a barrel by 0300 GMT (0600am Riyadh time), after dropping 1 percent overnight - the first fall in four sessions.

US West Texas Intermediate crude was up 18 cents, or 0.3 percent, at $56.06 a barrel, having dropped 1.6 percent in the previous session.

"We see it as a current tug of war between the bull case of OPEC production cuts, political risk in the Gulf and the recent reduction in crude inventories, versus the bear case of slowing global growth and a ramp-up in US production," said Hue Frame, managing director at Frame Funds in Sydney.

"We think the Middle East tensions will more than likely exist for the foreseeable future. While they exist, the tug of war will more likely continue in the crude market until the economic data either deteriorates further or rebounds," Frame added.

The overall sentiment in the oil market has darkened as investors worry that slowing global economic growth will weaken demand for oil.

A series of purchasing manager index readings in the United States and Europe were weaker than expected, confirming concerns about slower economic growth amid a trade war between the United States and China.

"Global growth concerns are driving energy prices lower as forecasts keep getting downgraded even as the US will be sending a trade team to China next week," Alfonso Esparza, senior market analyst at OANDA, said in a note.

Set against those worries are ongoing tensions in the Middle East following the seizure of a British-flagged tanker in the Gulf by Iranian forces last week.