NEW YORK (REUTERS) - Oil prices plummeted on Tuesday (Sept 1), settling 8 per cent lower, as weak Chinese data extended a roller-coaster run that knocked oil to its lowest in six-and-a-half years last week before frenzied short-covering fueled a 25 per cent three-session surge.
The past few weeks have been among the most volatile in the modern oil market's three-decade history, with prices plunging early last week as worries about China's economic strength sent shivers through risk markets, only to bounce back fiercely as bearish traders rushed to cash in short positions.
Traders took flight on Tuesday after seeing China's official Purchasing Managers' Index (PMI) drop to 49.7 in August and US manufacturing sector growth slow to its weakest pace in more than two years, reinforcing fears of slowing global growth and weaker fuel demand.
"It was primarily the China fear factor," Carsten Fritsch at Commerzbank in Frankfurt told the Reuters Global Oil Forum.
Some also wondered if the 25 per cent three-day surge through Monday, the biggest since Iraq's invasion of Kuwait in 1990, was overdone given a persistent global supply glut.
And an OPEC magazine commentary that some traders interpreted on Monday as signaling a possible subtle policy shift was nothing of the sort, OPEC insiders said.
Brent October crude fell US$4.59, or 8.48 per cent, to settle at US$49.56 a barrel, then fell below US$49 in post-settlement trade as US equities deepened the day's losses to more than 3 per cent.
American Petroleum Institute (API) data showing U.S. crude inventories soared 7.6 million barrels last week also pressured prices post-settlement.
Crude oil stocks were expected to have been unchanged last week, a Reuters survey of analysts said.
U.S. crude fell US$3.79, or 7.7 per cent, to settle at US$45.41 following an 8.8 per cent gain on Monday. US. crude fell as low as US$44.15 after the API report.
The CBOE's crude oil volatility index surged more than 10 per cent intraday Tuesday, nearing its highest since 2011 as oil traders scrambled to scoop up near record volumes of options.
Monday's rally was fueled in part by Energy Information Administration (EIA) revised data showing U.S. oil output peaked at just above 9.6 million barrels per day (bpd) in April before falling by more than 300,000 bpd over the following two months.
"Even with the EIA revision, we're still producing over 9 million barrels per day, so I'm not convinced we've seen the fundamental shift to justify the rally," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.