Oil prices attempt recovery after sharp losses

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World oil prices recovered some lost ground on Tuesday as investors went bargain hunting after sharp early falls on the back of weak Chinese economic data and a stronger dollar.

New York's main contract, light sweet crude for delivery in July, rose 31 cents to 74.28 dollars per barrel, coming off a low of 71.64 dollars.

London's Brent North Sea crude for July slid 33 cents to 74.32 dollars, likewise off a low of 71.51 dollars.

"You saw good bargain-hunting start to come in around 72 dollars," said Tony Rosado, a broker with GA Global Markets, cited by Dow Jones Newswires.

The market also found support after an industry survey showed that the US manufacturing sector grew for the 10th consecutive month in May, bolstering hopes of a sustained, if moderate, economic recovery.

The Institute for Supply Management's manufacturing index, also known as the purchasing managers index, stood at 59.7, down only slightly from 60.4 in April.

The reading -- which compiles managers' reports on everything from new orders to stock inventories -- was just above market expectations of 59.4.

The United States is the world's biggest energy consuming nation, followed by number two China.

In earlier trade, oil plunged on the back of weak stock markets, downbeat Chinese data and the stronger dollar, which makes the commodity more expensive for buyers using weaker currencies and tends to hit demand.

European stock markets sank and the euro hit a new four-year low at 1.2111 dollars on concern eurozone banks may have more problems still left on their weakened balance sheets.

However, the shared eurozone currency bounced back to stand at 1.2280 dollars in afternoon London deals on Tuesday.

Oil traders also digested data showing that China's purchasing managers index (PMI) slipped in May to 53.9 from 55.7 in April.

A separate PMI study by HSBC showed a drop to 52.7 from a revised 55.2 the previous month. A reading above 50 means the sector is expanding, while below 50 indicates an overall decline.

"The larger than expected decline of the Chinese PMI causes concerns that growth dynamics and thus also the demand for oil in China might weaken," said Commerzbank analyst Carsten Fritsch.

"Persistently high demand for oil in China and India was the supporting pillar of global demand growth for oil during the past months.

"Up to now, there seems to be no weakening of the demand for oil in these two countries, though."

The PMI figures follow a number of measures announced by Beijing aimed at cooling the country's blistering growth -- it expanded 11.9 percent in the March quarter -- including tighter lending by banks.

Meanwhile, BP shares crashed almost 17 percent on Tuesday after the British energy giant failed in its latest attempt to plug a broken well in the Gulf of Mexico.

The share price dived as investors as BP admitted that response costs linked to the oil spill disaster currently stand at nearly one billion dollars.


© 2010 AFP

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