Prices moved broadly throughout the session, lifted by early news of improving manufacturing data in China, the world’s second-biggest oil consumer.
China’s purchasing managers index rose to a five-month high in July of 49.5 from 48.2 in June, but a reading below 50 still indicates weakness.
China, the engine of growth for the global oil market, is expected to account for 300,000barrels a day of the worldwide rise in 2012 oil demand of 800,000 barrels a day, according to an International Energy Agency forecast.
But price gains on China were stifled by fresh worries about the health of European economies.
Markit Economics’s preliminary purchasing managers’ index for the euro zone was unchanged at 46.4 in July, indicating a sixth-consecutive month of contraction. In Germany, the preliminary July PMI fell to 47.3 from 48.1 in June.
Light, sweet crude oil for September delivery on the New York Mercantile Exchange settled 36 cents higher, at $88.50 a barrel. The rise staunched declines over the past two days that knocked crude down from highest levels since mid-May reached late last week. ICE September North Sea Brent crude oil settled up 16 cents, at $103.42 a barrel. The contract fell $3.57 a barrel on Monday, its biggest decline since Dec. 14.
Some market participants hold a stark view of looming weaker prices amid the economic gloom, while others see crude prices taking a breather and awaiting clearer signs.
Widely watched inventory data due out at 10:30 a.m. Thursday from the Energy Information Administration is expected to show U.S. crude oil stocks fell by 800,000 barrels in the week ended Friday, while refiners trimmed operations by 0.2 percentage points. Gasoline stocks are expected to show a 500,000-barrel drop, while distillate stocks (diesel/heating oil) are expected to rise by 1.1 million barrels.
The American Petroleum Institute, a trade group was scheduled to release its weekly data at 4:30 p.m. EDT Tuesday, but the market usually waits for the EIA figures to refute or confirm the API indications.
“I’m a little skeptical that what we’re seeing is more than profit-taking by some of the longs,” said Gene McGillian, analyst and broker at Tradition Energy, referring to trader who had bought contracts recently in anticipation of higher prices. “We’ve chased out some of the weak ones, now we need to see some dire economic data to drive much lower.”
He said the U.S. market has “more than ample supply” amid “anemic” demand for refined products like gasoline and distillate fuel (diesel/heating oil), meaning prices near or above $90 would be tough to support.
Mark Waggoner, president of Excel Futures, said he sees the economic crisis in Europe exerting extreme pressure on oil prices. “It’s a recipe to go lower,” he said.
Mr. Waggoner said he sees potential for crude oil to make a prolonged slide to as low as $74 a barrel.
On Thursday, the day the price settled at $92.66 a barrel, the most since mid-May, Mr. Waggoner said Tuesday, he put on a short position in Nymex crude oil futures, or a bet on lower prices. On Tuesday, he said, he went short on reformulated gasoline blendstock futures, which he noted, normally decline in August, when the front-month contract is for September delivery, or after the peak summer demand season.
Since its introduction in October 2005, the average price of front-month RBOB futures have fallen in August vs July in five of six years.
August-delivery reformulated gasoline blendstock futures fell 2% for a second straight day on Tuesday. The 5.81-cent decline put prices at $2.8248 a gallon, the lowest level since July 13.
Heating oil for August delivery settled up 0.55 cent at $2.8244 a gallon, after a sharp 10.54-cent, or 3.6%, decline on Monday.