08/03/2016 11:34 AST
Oil prices fell on Tuesday on weak Chinese trading data, but Brent remained over $40 a barrel after jumping to 2016 highs the previous day when producers announced talks to support the market and investors opened new bullish bets.
Brent crude futures LOCc1 managed to defend $40 per barrel, standing at $40.43 at 0742 GMT, down 41 cents from their last settlement. On Monday, the contract had surged over 5.5 percent in intra-day trading and has gained almost 50 percent from its 2016 lows on Jan. 20.
U.S. West Texas Intermediate (WTI) futures were at $37.51 a barrel, down 39 cents from their last close but over 40 percent up from their 2016 low on Feb. 11.
On the demand side, China's crude imports jumped 19.1 percent between January and February to 31.80 million tonnes, or about 8 million barrels per day, despite overall weak trading figures released on Tuesday.
"Higher 'teapot' (independent refinery) demand and stronger refining margins which encouraged higher refinery throughputs have contributed to increased imports. Falling domestic crude production is also supportive," said Virendra Chauhan of Energy Aspects.
Despite strong oil demand, questions about the sustainability of growing consumption weighed on markets as China's economic downturn saw its overall exports plummet by a quarter in February in the worst slump since 2009.
China's vehicle sales, a key driver for gasoline demand, in February fell 3.7 percent from a year earlier to 1.37 million, data from China Passenger Car Association showed.
"This is really a poor start for trade this year," said Zhang Yongjun, senior economist at the China Center for International Economic Exchanges.
BULLS VS BEARS
Following steady rises from late February on the back of a falling U.S. rig count, oil markets soared from last Friday after Russia's energy minister said that a meeting between the Organization of Petroleum Exporting Countries (OPEC) and other oil producers about freezing output could take place in March.
On Monday, South American producers also said they would meet to talk about action to support prices.
However, OPEC-member Kuwait dampened hopes of successful talks, saying on Tuesday that it would only agree to a freeze if all major producers, including Iran which previously called the proposal "laughable", acted jointly.
Meanwhile, Gary Ross, executive chairman at New York-based consultancy PIRA, said that oil would recover to $50 a barrel by year-end.
"They (OPEC) want $50 oil, this is going to become the new anchor for global oil prices," said Ross.
In anticipation of higher oil prices, traders have started to cut back short positions while opening up new long positions that bet on higher prices.
But Goldman Sachs cautioned of an overblown price rally.
"While these dynamics (rising prices) could run further, they simply are not sustainable in the current environment ... Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating as it did last spring," the bank said in a note to clients.
Reuters
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