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(Bloomberg) — Oil in London traded near $50 a barrel after reaching a six-month low amid speculation Iranian supplies will exacerbate a global surplus as demand from the U.S. to China slows.

Brent futures gained 1.7 percent, paring a 5.2 percent fall on Monday that brought prices below $50 for the first time since January. The Obama administration won support from Gulf Arab allies for its nuclear deal with Iran, which has pledged to boost production when sanctions end. U.S. refineries, which turned a record amount of crude into gasoline during July, typically slow down from August through October for maintenance.

Oil is trading in a bear market as expanding supplies and signs of slower economic growth in China fuel a rout in commodities from gold to copper. While U.S. crude stockpiles are forecast to have fallen last week, they’re still about 95 million barrels above the five-year seasonal average.

“The near-term outlook for oil prices remains bearish,” Seth Kleinman, head of energy strategy at Citigroup Inc. in London, said in a report. “Nothing points to a near-term alleviation of the material oversupply in the market,”

Brent for September settlement rose 79 cents to $50.31 a barrel at 10:53 a.m. on the London-based ICE Futures Europe exchange. The contract dropped $2.69 to $49.52 on Monday, the lowest close since Jan. 29. The European benchmark crude traded at a premium of $4.39 to West Texas Intermediate, the U.S. marker grade.

Nuclear Deal

WTI for September delivery rose 75 cents to $45.92 a barrel in electronic trading on the New York Mercantile Exchange. It declined $1.95 to $45.17 on Monday, the lowest close since March 19. Total volume was about 2 percent above the 100-day average. Prices have decreased more than 20 percent from this year’s high in June, meeting a common definition of a bear market.

“There’s a price range of $45 to $65 for WTI crude that’s needed to make U.S. shale oil profitable, like a shale price band,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. “Prices inevitably rebound as soon as we get near the edge of that range because the market knows any further losses will kill off U.S. supply growth.”

U.S. Inventories

In the U.S., the biggest oil consumer globally, crude inventories probably shrank by 1.63 million barrels through July 31, according to the median estimate in a Bloomberg survey of eight analysts before an Energy Information Administration report Wednesday. Supplies dropped to 459.7 million in the prior week, the Energy Department’s statistical arm said.

Secretary of State John Kerry said on Monday that foreign ministers from the Gulf Cooperation Council agreed Iran’s accord with world powers, curbing its nuclear program in return for easing sanctions, will contribute to regional security.
Iran can boost oil production by 500,000 barrels a day within a week of international curbs being lifted, the state-run Islamic Republic News Agency reported, citing Oil Minister Bijan Namdar Zanganeh. It pumped 2.85 million a day last month, compared with 3.6 million at the end of 2011, data compiled by Bloomberg showed.

China’s official Purchasing Managers’ Index and a factory index both fell in July, indicating that efforts to bolster the world’s second-largest economy have yet to fuel a recovery. The Bloomberg Commodity Index of 22 raw materials lost about 11 percent in July to the lowest since 2002.

To contact the reporters on this story: Heesu Lee in Seoul at hlee425@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net John Deane