US oil prices fell below $70 a barrel to their lowest in over three months today but then rebounded as short-sellers covered positions after a fall of almost 20 per cent in just two weeks.
US oil futures hit a 19-month high above $87 on May 3rd but have fallen steadily since then and reached a low of $69.82 a barrel today, their weakest since February 5th, on concerns over Europe's debts, the weak euro and swollen US oil inventories.
"It is not surprising that prices have recovered after such sharp falls," said Eugen Weinberg, analyst at Commerzbank in Frankfurt. "But it is probably a fairly short-term rally ... short sales are being covered after the sell-off."
By 1100 GMT, US crude for June delivery was up 10 cents at $71.71. At its intra-day low of $69.82, oil prices were down almost exactly 20 per cent from their peak two weeks ago. July Brent crude rose 5 cents to $77.98 a barrel.
So far in May, the U.S. crude contract has lost almost 17 per cent, its biggest monthly drop since December 2008. The contract is expected to face volatility ahead of today's June crude options expiry and the May 20th June crude contract expiry.
Stockpiles of crude at Cushing, Oklahoma, the delivery hub for the US contract's West Texas Intermediate benchmark crude, have risen in the last eight weeks to a record high 37 million barrels, pushing front-month US crude down relative to later futures contracts and the other global crude benchmark, Brent.
Brokers MF Global expressed concern for the outlook for oil and some other commodities and cited an analysis of fund flows suggesting that while precious metals could outperform, "crude oil, copper, and aluminium could be relatively vulnerable".
Members of the Organisation of the Petroleum Exporting Countries have said they think oil prices should be between $70 and $80, a range they say is fair for both consumers and producers. Recent price falls are worrying Opec countries.
Kuwaiti oil minister Sheikh Ahmad al-Abdullah al-Sabah said last week Opec was likely to meet if crude prices fell sharply.
"Sixty-five dollars would ring a bell ... and a meeting," he told reporters before an Arab Energy Conference.
But some traders believe such comments may be dangerous. MF Global said Opec may just be giving the oil market a target.
"Opec seems to be nonplussed by the recent decline, saying that it would not consider meeting until prices get to $65," MF Global said in a note to clients. "This effectively sets up a downside target that the markets will conceivably gun for, and one that is not outside the realm of possibility."
Qatar's oil minister said on Saturday he expected further pressure on oil prices from uncertainty engendered by the European debt crisis.
"The oil price is not reflective of demand and supply, but psychological (factors) and uncertainty, especially in Europe (and due to the Greece) bailout," Abdullah bin Hamad al-Attiyah told reporters. "All this put a lot of pressure on the world economy and the oil price," he said.
The tense mood also hit stocks. Japan's Nikkei shed 2.2 per cent, South Korea's stock index lost 2.6 per cent and Hong Kong's Hang Seng Index fell 2.6 per cent.
But the dollar rose 0.7 per cent against a basket of currencies. Gold priced in sterling hit an all-time high at £867 today after the British currency struck a fresh one-year low against the dollar.
A strong US currency makes dollar-denominated commodities, such as oil, more costly for holders of other currencies and tends to damp prices.
Reuters