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European share markets recovered on Tuesday but Chinese stock
markets closed down more than 7 percent, with panic selling
intensifying after the Shanghai Composite Index crashed through
key support at 3,000 points.
China cut interest rates on Tuesday in its latest move to
stimulate growth, but oil prices barely moved in response.
U.S. crude, also known at West Texas Intermediate or WTI, was up
$1.15 at $39.39 a barrel by 1100 GMT, while Brent <LCOc1> was up
$1.30 at $43.99.
"In the past few days, we have seen a lot of the effects of the
equity markets," Petromatrix oil analyst Olivier Jakob said.
"Crude is very oversold," he added.
Oil prices dropped to their lowest since early 2009 on Monday
and, despite Tuesday's slight uplift, many analysts think market
fundamentals will keep prices low.
"China's economy continues to slow and the (U.S.) Fed may still
hike rates before the end of the year. That puts further cracks
into the two main growth pillars for the world economy of recent
years: Chinese demand (including commodities) and easy money,"
HSBC's co-head of Asian Economics Research Frederic Neumann
said.
But Neumann said a re-run of Asia's financial crisis in the late
1990s was unlikely.
Daniel Ang at Singapore's Phillip Futures said the rebound for
oil could be temporary:
"Both WTI and Brent look like they are on their way to 2008
levels where prices hit a low of $32.4 and $36.2," Ang said.
Goldman Sachs said that while China's turmoil would not lead to
a global recession, it did expect the trouble to result in weak
commodities.
Beyond Asia's turmoil, oil markets have been suffering from
oversupply that started pulling down prices in June 2014.
Several members of the Organization of the Petroleum Exporting
Countries are producing record volumes of oil in an attempt to
squeeze out competition.
Some OPEC members have called for an emergency meeting to
discuss output cuts, but the organization's biggest oil producer
Saudi Arabia looks unlikely to let this happen.
Adding to supply glut concerns, OPEC member Iran said on Tuesday
it would increase crude production and reclaim its lost export
share after international sanctions are lifted, even if prices
remain low.
(Additional reporting by Keith Wallis and Henning Gloystein in
Singapore; Editing by Christopher Johnson)
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