Oil stabilised yesterday after China’s central bank moved to support the country’s economy, but prices stayed near six-and-a-half-year lows as a heavy supply glut kept the market outlook bearish.
“Oil is catching its breath a bit and seeing if markets have been oversold or not,” Capital Economics commodities economist Thomas Pugh said.
Brent was unchanged at $43.21 a barrel by 0925 GMT, and US crude was up five cents at $39.36 a barrel.
Oil has lost a third of its value since June on high US production, record crude pumping in the Middle East and concern about falling demand in Asian economies.
On Monday, both the crude oil benchmarks saw their lowest trades since early 2009, dropping as much as six per cent in one session after heavy falls in equity markets.
“The trend remains down, but in an erratic phase where attempts to recover are being made,” PVM Oil Associates director and technical analyst Robin Bieber said.
China cut interest rates on Tuesday and lowered the reserves banks must hold in its latest move to calm fears about a severe economic slowdown in a country whose major equities index, the Shanghai Composite Index, is now 43 per cent below the June peak for the year.
ANZ said China’s rate cuts had calmed commodity markets, but they remained cautious and gains would be limited as global oil oversupply is likely to persist in the short term.
Pugh at Capital Economics said he thought the oil market was “already pricing in a worst-case scenario in China at the moment”, adding: “I’d be surprised if we drop much further.”
Several members of the Organisation of the Petroleum Exporting Countries are producing record volumes of oil in an attempt to squeeze out competition, mainly from US shale oil producers.
Adding to the global glut, Opec member Iran has plans to increase crude production and reclaim its lost export share after international sanctions are lifted, and Nigeria is also boosting exports.
But an emergency Opec meeting to discuss possible production cuts looks unlikely.
Crude stocks in the US fell by 7.3 million barrels last week to 449.3 million barrels as refinery production runs increased, compared with analysts’ expectations for a rise of one million barrels, industry data from the American Petroleum Institute showed yesterday.