Oil rebounds in Asia after overnight declines

September 01, 2009 02:11:11 PM

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Oil rebounded modestly in Asian trade Tuesday after overnight declines on new worries about the global economic recovery, analysts said.

New York's main contract, light sweet crude for October delivery was 24 cents stronger at 70.20 dollars a barrel.

Brent North Sea crude for October delivery added six cents to 69.71 dollars a barrel.

Both contracts had closed below 70 dollars Monday after a sharp Chinese equity sell-off triggered worries about the global economy's recovery from recession, analysts said.

"The declines on Chinese equity markets tarnished oil market sentiment... China’s economic growth has been fuelling strong oil imports into China," said David Moore, a Sydney-based commodity strategist with the Commonwealth Bank of Australia.

China's Shanghai Composite Index plunged 6.74 percent Monday, its biggest one-day drop since June 2008, amid concerns over slowing lending growth and a new share supply glut.

Crude prices rose last week, fuelled mainly by hopes of an economic recovery which should mean greater demand for oil consumption and China was seen as among the key energy users that would drive up demand, analysts said.

The stocks plunge in China struck "a blow deep into the heart of expected oil demand growth," said Phil Flynn of PFG Best Research.

"Despite the winning ways of the US stock market, oil traders are increasingly focused on Asia which has had a rough go as of late," he said. "The market is concerned whether or not the Chinese government can engineer a soft landing."

Crude oil prices see-sawed last week, hitting 75 dollars for the first time in 10 months Tuesday before falling sharply.