Oil retreats more than $5 on weak data, eroding 25 percent rally

Tue Sep 1, 2015 5:34pm EDT
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By Robert Gibbons

NEW YORK (Reuters) - Oil prices plummeted on Tuesday, settling 8 percent lower, as weak Chinese data extended a roller-coaster run that knocked oil to its lowest in 6-1/2 years last week before frenzied short-covering fueled a 25 percent three-session surge.

The past few weeks have been among the most volatile in the modern oil market's three-decade history, with prices plunging early last week as worries about China's economic strength sent shivers through risk markets, only to bounce back fiercely as bearish traders rushed to cash in short positions.

Traders took flight on Tuesday after seeing China's official Purchasing Managers' Index (PMI) drop to 49.7 in August and U.S. manufacturing sector growth slow to its weakest pace in more than two years, reinforcing fears of slowing global growth and weaker fuel demand.

"It was primarily the China fear factor," Carsten Fritsch at Commerzbank in Frankfurt told the Reuters Global Oil Forum.

Some also wondered if the 25 percent three-day surge through Monday, the biggest since Iraq's invasion of Kuwait in 1990, was overdone given a persistent global supply glut.

And an OPEC magazine commentary that some traders interpreted on Monday as signaling a possible subtle policy shift was nothing of the sort, OPEC insiders said.

Brent October crude fell $4.59, or 8.48 percent, to settle at $49.56 a barrel, then fell below $49 in post-settlement trade as U.S. equities deepened the day's losses to more than 3 percent.

American Petroleum Institute (API) data showing U.S. crude inventories soared 7.6 million barrels last week also pressured prices post-settlement.   Continued...

A customer prepares to fill the tank of her car at a fuel station in Sint Pieters Leeuw December 5, 2014.   REUTERS/Yves Herman