Oil Rises As Tighter U.S. Market Offsets Asia Woes
Oil prices rose on Tuesday after evidence of tightening supplies in the United States, the world’s biggest oil consumer, outweighed concerns over the health of the Chinese economy.
China’s giant manufacturing sector is shrinking, economists say, as domestic demand falters, fanning concern that the economy may be slowing more sharply than feared.
Asian stock markets skidded to 3-1/2-year lows and the dollar sagged, pulled down by sharp losses on Wall Street after weak Chinese data.
But the outlook for the U.S. economy looks brighter and oil supply there appears to be tightening with data estimating a drawdown of over 1 million barrels last week from the Cushing, Oklahoma delivery hub for U.S. crude.
Brent crude oil LCOc1 was up 45 cents at $47.79 a barrel by 0440 EDT after dropping 2.5 percent on Monday. U.S. light crude oil CLc1 was up 40 cents, at $44.83.
Oil prices have stabilized over the last month after more than a year of dramatic falls and rallies that have seen benchmark Brent swing between a high above $115 a barrel in June 2014 to a low of almost $42 in August this year.
Underlying the collapse in prices is a huge oversupply as Middle East oil producers have fought for market share with U.S. shale producers, increasing stockpiles worldwide.
Global commodity prices have slumped, squeezing income for producers of key raw materials and triggering a sector-wide crisis. Shares in commodity trading firms, such as Glencore (GLEN.L) and Noble (NOBG.SI), have been hit hard.
“Growth concerns for China and the close to 30 percent drop in Glencore shares have helped to drive bearish sentiment,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.
Oil traders awaited official figures from the U.S. government on Wednesday on supply and demand in the United States, the biggest domestic oil market. [EIA/S]
Market intelligence firm Genscape estimates stocks at the Oklahoma delivery hub for U.S. crude fell by more than 1 million barrels last week, traders who saw the figures said.
Lower oil prices may have begun to reduce production in the United States, but the world still faces an oil glut.
“The United States alone cannot rebalance the world market,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt. “We are still waiting for concrete evidence that the oversupply is being reduced.”