SINGAPORE: Oil held steady above $75 on Tuesday as prospects for rising demand in emerging economies offset concern about the impact of Europe’s debt crisis.
Spain admitted on Monday that the European financial crisis is taking a toll on the country’s banks, while credit ratings agency Moody’s slashed Greek sovereign debt by four notches to junk status.
"Certainly Greece is a worry, and I worry about contagion that could cause a double-dip recession, but there are certain economies that are doing very well – Asia is booming," said Peter McGuire, managing director of Commodity Warrants Australia in Sydney, adding oil could rebound to about $78 by the end of June.
US crude prices on Monday pared gains following news of Greece’s
downgrade but still held onto a 1.8 percent increase by the settlement.
On Tuesday the July contract was unchanged at $75.12 a barrel at 0505 GMT, still down 14 percent from a 19-month peak above $87 in early May.
ICE Brent for July, which expires by the close of trade on Tuesday, gained 12 cents to $75.32.
Greece’s downgrade on Monday interrupted a global rally in stocks triggered by data showing euro-zone industrial output surged in April.
The global economic recovery is likely to be "slow and tortuous" and China faces risks from a multitude of factors including trade protectionism and bad real estate loans, China’s Banking Regulatory Commission (CBRC) said on Tuesday.
Asian stocks slipped on Tuesday, snapping a five-day winning streak, while the dollar gained 0.25 percent against a basket of currencies.
"I wouldn’t be surprised if the dollar has a correction against the euro" in the coming months, McGuire said.
A weaker US currency would render oil imports cheaper for Asian economies.
Emerging markets account for much of the 1.7 million-barrel-a-day growth in oil demand forecast by the International Energy Agency (IEA) for this year.
Demand from China, the world’s second largest energy consumer, grew by 12.7 percent in April year-on-year, the IEA said last week, and it is expected to remain robust.
Traders were also closely watching a weather system currently in the middle of the Atlantic Ocean, which the US National Hurricane Center said has a 40 percent chance of becoming a tropical cyclone in the next 48 hours.
The Atlantic hurricane season started at the beginning of this month and lasts through November. Forecasters have said the 2010 season will be more active than usual.
A storm heading to the oil-producing Gulf of Mexico, where BP is struggling to contain the largest oil spill in US history, could be a catalyst to propel oil prices above $76.30, the four-week high reached on June 10 that chart watchers identify as resistance, McGuire said.
Attention in the oil market was set to turn to weekly inventory reports from top consumer the United States.
Crude oil inventories there probably dropped for the third straight time last week due to lower imports, a preliminary Reuters poll of analysts showed on Monday ahead of weekly industry and government reports later this week.
On average, crude inventories were forecast to have fallen 1.4 million barrels in the week to June 11, the poll of eight analysts showed.
Stockpiles of distillate fuel including heating oil and diesel probably gained 800,000 barrels, while gasoline inventories were expected to have increased by 500,000 barrels.