SINGAPORE - Oil prices steadied Tuesday in Asia after falling more than $4 a barrel overnight as investors worried that the sale of Bear Stearns Cos. is a sign of deep economic trouble in the United States.
JPMorgan on Sunday agreed to bail out Bear Stearns by buying the investment bank in a U.S. Federal Reserve-backed deal worth $236.2 million — or $2 a share — just a fraction of the investment bank's book value last week.
The deal, while averting a bankruptcy filing for Bear Stearns, showed the severity of the fallout from the country's credit problems. Prices of oil and other commodities plunged as investors mulled the next round of financial woes following the Bear Stearns sale.
"It was a broad based drop of commodities last night, and oil got caught up in that," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "It mainly reflected concerns about the U.S. economic outlook given the stresses in the U.S. financial system."
Light, sweet crude for April delivery added 43 cents to $106.11 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.
The contract dropped $4.53 to settle at $105.68 a barrel Monday, hours after crude futures reached a new trading high of $111.80.
Traders were focusing on the Federal Reserve's meeting later Tuesday. The bank is expected to aggressively cut a key interest rate even lower as it races to contain spreading financial fires that threaten an economic meltdown.
"Traders are more or less catching their breath after last night," Moore said. "They're now waiting to see what action the Fed will take."
Many economists believe the Fed will deliver another three-quarter-point cut or perhaps even a full one-point reduction at Tuesday's meetings. If a large enough cut materializes, analysts expect oil prices to rally in the following days.
"If recent history is a guide, a 100 basis point reduction by the Fed (Tuesday) could result in oil rising to the $114 to $116 range over the course of the next weeks," wrote Platts Chief Economist Larry G. Chorn in a research note.
In the past several months, Fed rate cuts have fed rallies in oil prices. Interest rate cuts, and even the prospect of future cuts, tend to weaken the dollar further, drawing fresh investing into oil futures.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is down.
But "just the opposite is also possible, if the market pays more attention to (an) economic slowdown," said Koichi Murakami, a broker at Daiichi Shohin. "It's hard to predict, as prices these days have moved totally unconnected with the crude's fundamentals."
Other energy futures also gained.
Heating oil rose 0.66 cent to $3.075 a gallon while gasoline prices added 1.23 cents to $2.5165 a gallon. Natural gas futures gained 3.7 cents to $9.137 per 1,000 cubic feet.
In London, Brent crude futures advanced 46 cents to $102.21 a barrel on the ICE Futures exchange.