Oil prices rebounded after dipping toward $30 a barrel as stabilizing stock markets around the world and a fading dollar are helping fuel a rebound.
Light, sweet crude for February delivery recently gained 31 cents, or 1%, to $31.72 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 39 cents, or 1.2%, to $31.94 a barrel on ICE Futures Europe.
Both had fallen to fresh intraday lows dating back 12 years before they started to rebound overnight. Oil prices have been steadily collapsing for about 18 months because of a lingering glut and relentless production. This winter has brought another leg down as a rising dollar and foundering stock markets around the world, especially China, have raised questions about whether demand will grow fast enough to absorb the supply.
That fear subsided slightly Tuesday, helping oil recover, brokers and analysts said. Stock markets in the U.S. and Europe are posting small gains and the Shanghai Composite Index gained 0.2%.
The dollar’s gains also faded Tuesday, with The Wall Street Journal Dollar Index retreating from gains back to unchanged shorts after the beginning of traditional U.S. trading hours. As the dollar falls in value, oil and other dollar-denominated commodities become less expensive for holders of other currencies, and their prices often rise as the dollar falls.
“Equities are stabilizing and dollar is coming off its high,” said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates LLC. For oil, “it’s pressure release. It’s nothing (more).”
Speculators are also banking on help from the Organization of the Petroleum Exporting Countries after Nigeria’s oil minister said Tuesday that some nations are pushing for an emergency meeting. The organization controls more than one-third of the world’s crude oil supply and has historically used such meetings to determine production levels as a way of regulating prices.
“Every producer is hurting now,” said Olivier Jakob of the Swiss-based Petromatrix. “It is not about the U.S. producers anymore.”
Some heavier grades of crude are already trading at under $20 a barrel, Mr. Jakob added. That includes heavy grade oils from Canada and Iraq, which are expensive to pump, transport and refine. Canadian Heavy was selling for $16 a barrel while Iraq’s Basra Heavy was also skirting around the $20 a barrel level, according to Gordon Kwan, the regional head of Nomura oil and gas research.
Mr. Kwan called the situation a “crisis of confidence” in the Chinese economy.
“It is hard to pick a bottom [for oil prices] right now because the fundamental is so weak,” said Vyanne Lai, an analyst at National Australia Bank. “Erratic actions by the Chinese government to manipulate the yuan is sending jitters that the government is unsure what direction their forex policy should be.”
London-based Energy Aspects pointed to the mild start to the Northern hemisphere winter as another key factor in the price rout. The research group said demand had fallen by 800,000 barrels for this time of year.
Energy Aspects said supply will have to fall further to rebalance the market. But U.S. weather updates on Tuesday pulled back on the amount of cold they’re predicting in the coming weeks. Several parts of the north—especially one of the country’s biggest markets for oil-based heating fuels in New England—are likely to see above-normal temperatures settle in later this month, weather forecasters said.
Diesel futures gained 1.3% to $1.0282 a gallon. Gasoline futures recently gained 3.7% to $1.1541 a gallon.
Later Tuesday, the American Petroleum Institute will release its weekly U.S. inventory forecast, in one closely watched indicator of supply.
