Crude-oil futures prices slashed deep early losses and rebounded with equities prices to settle just three cents lower at $94.25 a barrel Thursday.
Oil shed more than $2 a barrel in the late comeback, after it languished through most of the day amid broader market weakness as global traders turned risk averse. Worries that the U.S. Federal Reserve may be nearing the time when its starts scaling back its massive bond buying program unhinged markets on Wednesday and echoed into Thursday's trade. Japan's stock market closed down by 7.3%, the biggest drop since the earthquake/tsunami disaster of March 2011 that triggered a nuclear-plant crisis.
Pressure on prices built after signs from China, the world's second-biggest oil consumer, that its manufacturing sector posted its biggest decline seven months.
But sellers began withdrawing after U.S. equities began recovering, with some investors likely squaring their positions in advance of the Memorial Day holiday, which will shut U.S. markets Monday.
"We started turning around when the Dow went positive," said Addison Armstrong, director of market research at Tradition Energy, referring to the Dow Jones Industrial Average. "With the three-day weekend coming some people are squaring up and taking their chips off the table."
Light, sweet crude oil for July delivery on the New York Mercantile Exchange settled three cents lower, at $94.25 a barrel. Prices moved broadly in a near-$2 trading range, hitting a low of $92.21 a barrel.
July North Sea Brent crude oil futures on the InterContinental Exchange settled 16 cents lower at $102.44 a barrel, after trading as low as $100.64 a barrel.
Despite the rebound, after two days of losses, traders said the market remains worried about the potential for oil demand growth.
In China, the preliminary Manufacturing Purchasing Managers' Index fell to 49.6 in May from 50.4 in April. A figure below 50 signals a contraction in the sector. That raises concerns about a potential slowdown in China's growing appetite for oil.
China is expected to account for half of total world oil-demand growth of 890,000 barrels a day this year, according to a forecast by the U.S. Energy Information Administration.
"If we're not going to get it from there, we've got a problem," said Kyle Cooper, analyst at IAF Advisors. "There'll be no demand growth and a lot of crude around the world and the U.S. already is awash in petroleum products."
U.S. government data released Wednesday showed the U.S. gasoline stockpiles rose by three million barrels in the latest week, against expectations of a modest decline. Higher refinery output and imports and reduced exports fed the gain and left inventories at nearly 10% above year-earlier levels. That surplus, the biggest since August 2010, signals that supplies aren't likely to be an issue during the peak driving season. Meanwhie, crude oil stocks remain near their highest level since April 1981, keeping pressure on prices.
Traders said oil prices have gained much of their recent support from the economic-stimulus programs in the U.S., the EU and Japan, rather than from oil supply-demand fundamentals.
"If any of these programs are nearing an end the oil complex will likely be hit with a very strong correction to the downside as oil prices are still overvalued," said Dominick Chirichella, analyst at the Energy Management Institute.
Reformulated gasoline blendstock futures for June delivery settled 0.87 cent higher, at $2.8281 as gallon, after an 8.75-cent drop in the prior three days.
June heating oil settled 1.36 cents lower at $2.86 a gallon. The contract lost 9.08 cents in the past three sessions. Heating oil trades as a proxy for diesel fuel, which powers trucks and trains nationwide.
Copyright (c) 2012 Dow Jones & Company, Inc.
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