Oil above $40 after 10 percent fall
Oil hovered above $40 a barrel on Tuesday, after slumping 10 percent overnight as the deepening global recession threatened to crimp energy demand further, outweighing OPEC's strong compliance with supply curbs.
Global stocks plumbed multi-year lows on Monday, while the dollar climbed to nearly three-year highs as a record quarterly loss for U.S. insurer AIG heightened fears about the financial sector and boosted the greenback's safe-haven status.
A slew of economic data, topped by February unemployment and non-farm payroll data on Friday, will give further clues on the state of the U.S. economy, while inventory figures on Tuesday and Wednesday will show the impact on demand from the world's top energy consumer.
U.S. crude was up 4 cents to $40.19 a barrel by 0655 GMT (1:55 a.m. EST) , after tumbling $4.61 overnight, while London Brent crude rose 5 cents to $42.26 a barrel.
"We will continue to be surprised on the bearish side by the data that's coming out -- this keeps the demand deterioration argument very much alive, and pushes the OPEC production cuts to the backburner, precluding OPEC from becoming a significant force in this market, " said Jim Ritterbusch, president of Ritterbusch & Associates.
"We anticipate that oil has further to fall. We could see a little support around $37, but it would be a surprise if the market doesn't take out that level later this week."
The deepening of the 14-month economic slump was underscored by a report on Monday that showed U.S. spending on construction projects slumped to its lowest level in over four years in January.
U.S. stocks extended their sharp losses on Monday as insurer American International Group (AIG.N), which posted a record $61.7 billion quarterly loss, was bailed out with government money again, fueling fears that the global financial crisis is worsening.
The economic crisis has prompted some members of OPEC to call for further output cuts when the group next meets on March 15.
Compliance with previous cuts has been strong, with OPEC oil supply down in February for the sixth straight month, although output remained above target levels, a Reuters survey showed on Monday.
Algerian Energy and Mines Minister Chakib Khelil said it was quite possible OPEC would cut again. But Iran's Oil Minister Gholamhossein Nozari said he did not expect another reduction because the group's 80 percent commitment to existing curbs had helped stem price falls.
"OPEC will cut further but that will probably not be enough to place a bottom in the market," Ritterbusch said, adding that
any sustained upturn in oil prices is at least several months away.
"We are still glued to the hip to the weakening equity market. In the next couple of months, the equity market will probably bottom out, and at the same time, with seasonal demand for gasoline beginning to kick in, we could see an upward movement that could accelerate in the second half."
U.S. crude oil inventories are expected to have risen by an average of 900,000 barrels last week as imports rebounded, a Reuters poll of analysts showed on Monday, ahead of weekly inventory data from the API and the EIA.
The survey also projected a fall in distillate and gasoline stocks -- on average a 1.5 million-barrel drop in distillates, which include heating oil and diesel, and an 800,000-barrel decrease for gasoline.
Oil traders consider the API report to be less accurate than the U.S. EIA data, which requires energy firms to respond to their weekly survey.