Oil Prices Rebound on Euro Recovery

The Street, Andrea Tse

Oil prices were rebounding on a strengthening euro spurred by a better-than-expected auction of Italian 12-month bills.

Light sweet crude oil for August delivery was up $1.13 at $96.28, while Brent futures for August delivery were trading sideways at $117.30 a barrel.

The U.S. dollar was trading sideways against a basket of major currencies at $75.95, while the euro was down 0.2% to $1.4002, paring losses.

This, against serious headwinds: three consecutive days of losses in oil futures due to global economic worries after China—the world's biggest energy consumer—raises a key interest rate for a third time in 2011, amid an inconclusive U.S. budget debate and, of course, European debt contagion fears.

"The move into positive territory by WTI seems to be related to the paring of losses for the euro and equities," says Summit Energy analyst Matt Smith, adding that the U.S. market may also be shifting its focus to the Wednesday weekly Department of Energy inventory report, which is pointing to a notable drawdown in crude stocks.

"Today's play looks like 'buy WTI in anticipation of a decline in U.S. commercial crude stocks for last week,'" Citi Futures Perspective Energy analyst Tim Evans said.

Smith comments that the recent selloff in crude has been "much more vicious" for WTI, with the spread between it and Brent reaching a new record at $22. Tuesday's action appears simply to be a reversal of some of this price action, he said.

Smith notes that the spread between the two remains extremely volatile.

Brent crude prices were paring losses on speculators taking advantage of thin intraday volumes.