Oil prices sunk in early Monday morning trading in Asia (by as much as 2.5 percent) to record 5-1/2 year lows before rebounding. US benchmark West Texas Intermediate rose 49 cents to $58.30 and Brent gained 68 cents to $62.53, a rebound from early trading for both contracts.
Investors are concerned about the volatile oil market as well as the declining manufacturing sentiment in Japan.
The global energy watchdog predicts that oil prices will decline even more next year because of weakening demand and an oversupply of oil in the market.
US crude for January delivery fell by 95 cents to USD 56.86 a barrel, after reaching a low of USD 56.25 – the lowest level since May 2009.
The U.S., Europe and China will be releasing key economic data on Tuesday.
Analyst Daniel Ang at Phillip Futures said:
“Expectations for this month’s PMI are favorable which should prevent a further drop for the week,”
This is in contrast to what the International Energy Agency predicts.
Analyst Oswald Clint at Bernstein Research said in a report:
“We expect prices to recover in 2015, rather than remain at current low levels,”
Business sentiment in Japan
Business sentiment in Japan faired worse than expected in the fourth quarter. According to data released on Monday, the big manufacturers index dropped from +13 in the previous quarter to +12. This reading failed to meet expectations of +13 in a Reuters poll.
Japanese shares down
Japanese shares dropped for the most part, with the country’s major automakers Suzuki Motor, Nissan and Toyota Motor posting drops of 2.6 to 1.9 percent.
The Nikkei 225 fell by 272.18 points from its previous close down to 17,099.40 on Monday.
China posts losses too
The key Hong Kong Hang Seng index fell by 1.6 percent to below the 23,000 level, while the Shanghai Composite index opened down nearly 1 percent.
A report on Sunday indicated that the mainland’s economic growth could only be 7.1 percent next year, lower than the expected 7.4 percent this year.