Brent crude steadied below $113 a barrel today after a fall of over $5 in the previous session on rising gasoline inventories and falling demand for the motor fuel in top consumer the United States.
Brent crude rose 36 cents to $112.93 a barrel by 0710 GMT, after a surprise rise in US gasoline inventories fuelled the second rout in a week on commodity markets yesterday. US crude rose 20 cents to $98.41.
Benchmark gasoline futures fell almost 8 per cent yesterday after US government data showed gasoline inventories rising last week for the first time in 12 weeks while demand fell on the year.
US crude stockpiles also rose, jumping 3.8 million barrels to a two-year peak above 370 million barrels.
There could be steeper falls ahead, according to technical charts. Brent could fall toward $105.21, according to Reuters analyst Wang Tao.
"If you see it from a fundamental point of view, the price is still too expensive and far from an appropriate value," said Ken Hasegawa, a commodity derivatives manager at Japan's Newedge brokerage.
Earlier today, oil clawed back about $1 as investors focused on strong demand growth in Asia.
"In the United States they are more concerned about the unexpected rise in gasoline inventories and the sputtering economic recovery," said Gordon Kwan, head of energy research at Mirae Assets Securities in Hong Kong.
"But over in Asia we have a more bullish view. Even if we see weakening in Chinese industrial output, it is still very strong and we don't believe in a hard landing. Inflation has peaked, so we believe tightening policies will be done by the end of the third quarter. Oil demand will remain elevated in the run-up to the winter."
Implied oil demand in China, the world's second-largest crude consumer, reached its third-highest level on record last month, but year-on-year growth slipped to 8.8 per cent after six consecutive months of double-digit gains.
At the current pace, China has surpassed a growth rate of 5 per cent to 7 per cent in oil consumption suggested in a Reuters poll earlier this year.
Still, signs that China's economy is cooling prompted some investors to sell on concern of a faster-than-expected slowdown. For others the cooling economy is more positive as it presages the end of the monetary tightening cycle and potentially to sustained expansion and fuel growth in the world's second-largest economy.
China's consumer inflation eased modestly to 5.3 per cent in April from a 32-month high of 5.4 per cent in March, underlining the view that price pressures are peaking and may start to ease in the second half of 2011.
"A gradual slowdown is much better news for China than overheating, which would require more drastic action," said JP Morgan analysts led by Lawrence Eagles. "China has a lot of tools to reverse a steeper than expected slowing of the economy should it materialise. There does appear to be room to increase oil imports in the months ahead."
Brent crude is up 19 per cent this year, having jumped to a 32-month high above $127 last month and easing back to as low as $105.15 on May 6th.
Yesterday's abrupt tumble in prices drove oil volatility to its highest close since mid-March as prices posted their second rout in less than a week. The drop could prove another blow to commodity hedge funds, after last week's oil drop spurred double digit losses to big name funds such as Astenbeck and BlueGold.
Reuters
