Singapore - Oil opened firmly in Asian trading on Tuesday after clocking up gains of 11 percent in the prior two sessions, but prices began coming off their best on persistent worries over China's demand outlook.
Some investors are betting that a bottom had formed to the seven-month long rout on the market even as others remained pessimistic.
Brent crude oil futures opened at $55 a barrel on Tuesday, before edging back to $54.97 by 01h25 GMT. US WTI futures were at $49.94 a barrel, down from a high of $50.46 a barrel.
Prices jumped in the past two days after data showed the number of US oil drilling rigs had fallen the most in a week in nearly 30 years. Month-end covering by traders taking profits on earlier short positions added to the rally.
Yet the demand side in Asia remained weak. Morgan Stanley said in a note that its China Pulse Business Condition Survey for Energy for last December recorded two thirds of respondents expected the sector's conditions to either worsen slightly or significantly, while only a third expected an unchanged outlook. Nobody saw conditions improving slightly or significantly.
At the core of China's weakening outlook is slowing demand despite falling prices, creating deflationary pressure.
“Deflationary risks are stalking the globe and China has dealt with declining producer prices for 33 months,” Morgan Stanley said.
Reuters