Oil fell below $51 a barrel today as investor caution over auto maker Chrysler's bankruptcy filing tempered a growing sense of optimism over the world economy.
Chrysler filed for Chapter 11 bankruptcy and announced an industry-changing deal with Fiat, after being hit by sliding car sales. The news sent US stocks lower yesterday. European equities were little changed today.
“Although difficulties of the US auto makers have been pretty much factored in, Chrysler's bankruptcy will have some impact on sentiment,” said David Moore, chief commodities analyst at the Commonwealth Bank of Australia.
Trade was expected to be relatively thin because many markets across Europe are closed for the May Day holiday.
Oil, which collapsed due to the recession from a record high of more than $147 last year, has recovered from a low of $32.40 in December and in April posted a third monthly gain of nearly 3 per cent.
Still, weak oil demand in the near-term and rising crude inventories in the United States - now at their highest since 1990 - have slowed the pace, keeping prices in a $45-$55 range since mid-March.
Traders are looking for further signs of an improving global economy to support prices at around $50, a level many OPEC ministers have said is acceptable for now.
One such measure emerged today from China, where the official purchasing managers' index (PMI) for April rose to 53.5 from 52.4 in March, official data showed today, marking its fifth consecutive month of improvement.
US factory order data for March due out later in the session are expected to give a better sense of whether the recession in the United States is easing.
Analysts said markets would also eye the flu outbreak as officials urged increased worldwide precautions against an imminent pandemic and Mexico began shutting down parts of its economy to slow the spread of the new flu strain.