Oil rebounded on Tuesday, but was five per cent off its record peak of the previous day as investment funds capped their exposure to commodities in the face of crumbling global financial markets.
US crude rose 52 cents to $106.20 a barrel after sliding $4.53 or 4.11 per cent in its worst single day per centage decline in more than seven months to settle at $105.68.
London Brent crude was 55 cents higher at $102.30 a barrel.
World financial bourses tailspinned on Monday after JPMorgan Chase Co stepped in to rescue the ailing investment bank Bear Stearns for a bargain buy of $2 a share.
"The big sell-off you saw in the previous session was triggered by financial concerns...there was also profit taking ahead of the Federal Reserve meeting tomorrow," said Jim Ritterbusch, president of Ritterbusch Associates.
The US Federal Reserve, which expanded lending to securities firms for the first time since the Great Depression in an attempt to shore up confidence, will meet on Wednesday to decide on an interest rate cut aimed at preventing a meltdown of the financial system.
"What the Fed does will impact the value of the US dollar...as the dollar weakens there will be a scramble for hard assets like oil and commodities like gold," Ritterbusch said.
Oil traded in a wide range on Monday between a record high of $111.80 to as low at $103.23 a barrel as investment funds sold off holdings, while gold dropped to $996.30/997.10 per ounce after hitting a historical high of $1,030.80 an ounce in the previous session.
Oil prices could come under further pressure, analysts said, as refined products prices have fallen sharply, making it less profitable for refiners to turn oil into fuel.
US RBOB gasoline futures crashed down 18.52 cents or 6.89 per cent to settle at $2.5042 a gallon, dragging the price of RBOB gasoline below that of crude oil for the first time as US gasoline stockpiles have risen to 15-year highs.
"The weakness in the gasoline market will weigh on the entire barrel," Ritterbusch said.
Ministers of the Organisation of the Petroleum Exporting Countries have repeatedly said high oil prices are not related to fundamentals, but are the result of speculation and the US dollar's fall. (Reuters)
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