VIENNA, Austria – Oil prices made up some lost ground Tuesday after plummeting on mounting evidence of a U.S recession and waning Chinese demand.
Monday's steep slide was precipitated by U.S. manufacturers reporting lethargic activity numbers for October. The Institute for Supply Management said its manufacturing index fell to 38.9, the worst reading in more than a quarter century. Any reading below 50 signals contraction.
Light, sweet crude for December delivery was up $1.04 to $64.95 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. After rising above $69 per barrel Monday, light, sweet crude for December delivery tumbled $3.87 to settle at $63.91 overnight.
The manufacturing data along with weak U.S. auto sales "poured cold water" on the oil market, said Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore.
"The overriding concern is the economy in the U.S.," Shum said. "For 2008 there is unlikely to be any demand growth for oil and in 2009 there may be some modest growth but much less than we would have seen otherwise."
Adding to the gloomy outlook for the oil market, Credit Suisse cut its forecast for growth in China's oil demand next year to nearly zero from 4 percent on the back of lower economic growth forecasts.
"The latest set of economic data out of China suggests a much more severe economic slowdown is under way there. Hopes of even a slightly decoupled China in 2009 are fading fast," the investment bank said in a report.
Oil industry analysts had believed he booming economies of India and China would pick up any slackening of demand if Western nations went into recession. That view has weakened in recent months, as the economic crisis in the United States spread across the globe.
Stock markets, often a barometer of the economy for oil traders, were mixed in Asia. Japan's Nikkei 225 stock average jumped 6.3 percent as investors played catch-up to Asia's rally Monday following a long weekend. Hong Kong's stocks edged up 0.3 percent, but markets in China and Singapore fell.
Shum said he expects oil to continue trading within its recent $60 to $70 band. Prices have tumbled since spiking to nearly $150 a barrel in July.
The recent output cut by the Organization of Petroleum Exporting Countries is likely to achieve a "fairly good level" of compliance from member nations, creating a floor for the oil price, he said.
But a second cut at OPEC's next meeting in December seems unlikely and would be difficult to implement, Shum said.
To keep prices from falling further, Venezuela's Oil Minister Rafael Ramirez has said OPEC, which controls about 40 percent of world crude oil production, will need to cut production by at least 1 million barrels daily on top of the already announced cut of 1.5 million barrels a day.
One quick benefit of falling oil prices has been less pricey gasoline in the U.S. and elsewhere.
Gasoline futures rose more than 2 pennies to $1.39 a gallon, after a steep fall overnight on the Nymex. In his Schork Report, trader and analyst Stephen Schork noted that prices at the pump now are "47.2 cents ... below the corresponding level from a year ago" — a 16 percentage point decline.
Heating oil gained nearly 5 cents at $2.03 a gallon while natural gas for December delivery rose nearly 14 cents to fetch $6.97 per 1,000 cubic feet.
In London, December Brent crude rose $1.31 to $61.79 on the ICE Futures exchange after plummeting $4.84 overnight.