Oil fell towards $50 a barrel on Tuesday, paring early gains after European equities turned lower, as investors continued to track share movements to try and gauge the strength of the global economy.
US light crude for May delivery was down 67 at $50.38 a barrel by 9.19am, having settled $1.46 lower yesterday as Wall Street tumbled.
London Brent crude fell 29 cents to $51.95. Crude oil prices have been closely tracking the fortunes of broader markets as investors look for clues as to when oil demand might rebound.
“Everybody realises that demand is very bad. Inventories are really high and fundamentals are not very good," said Tony Nunan, risk manager at Mitsubishi Corp.
“Demand goes hand in hand with the economy these days, so people are trading on the back of the global economy."
European shares opened higher but quickly turned lower on Tuesday after UK data showed the 12th consecutive monthly fall in manufacturing output.
The global recession has cut oil demand around the world, with consumption expected to shrink for at least two years running for the first time since the early 1980s.
The resumption of oil flow through the Kirkuk-Ceyhan oil pipeline also pressured prices.
Oil flow through the pipeline, which carries more than a fifth of Iraqi crude to the Turkish Mediterranean coast had resumed yesterday, a source at Botas, the Turkish pipeline operator, told Reuters.
Strength in the dollar also weighed, as commodities prices in the US currency become more expensive for overseas investors.
Little upside is expected from weekly US inventories data due today and tomorrow, with oil analysts predicting yet another increase in crude stocks because of high import levels and weak demand from domestic refiners.
A preliminary forecast of seven analysts called for a 2.1 million barrel rise in crude stocks, which are already running at a 16-year high, according to the US Energy Information Administration (EIA).
But gasoline stocks could fall by 1 million barrels, and distillates by 0.4 million barrels, mainly due to lower refinery production. Demand may have dipped too, analysts added.
The American Petroleum Institute will release its report today.
Reuters