June 22, 2012 / 11:52 IST
Brent crude hovered below $90 on Friday, up slightly after previous session's steep losses, but was headed for it biggest weekly loss in about a year as bleak data from top consumers United States and China muddied the outlook for demand.
Shrinking business activity across the euro zone, already roiled by a debt crisis, and a downgrade to the credit ratings of 15 of the world's biggest banks by ratings agency Moody's added to the gloom and weighed on commodities.
"Manufacturing is a key indicator of oil demand, and based on the data coming out of the United States it doesn't look good, even though prices have been coming off," said Ben Le Brun, a Sydney-based market analyst at OptionsXpress.
"Prices are a little bit higher this morning, because of some short covering by bargain price hunters."
U.S. factory growth grew at its slowest pace in 11 months in June, business activity across the euro zone shrank for a fifth straight month while Chinese manufacturing contracted for an eighth month running.
Brent rose 45 cents to $89.68 per barrel by 0510 GMT, after dropping below $90 a barrel for the first time in 18 months in the previous session. U.S. crude was up 27 cents at $78.47 per barrel, after a 4 percent drop on Thursday.
Brent has shed over 8 percent so far this week, biggest weekly drop since around the middle of last year, while U.S. crude is on track for a more than 6 percent weekly decline.
Technical charts show a moderate rebound to $90.76 may be on the cards for Brent before the resumption of a medium-tern downtrend, while U.S. oil is due to rebound to $79.46 per barrel, according to Reuters market analyst Wang Tao.
"The tide really is against oil prices at the moment and the focus is going to remain on Europe for the moment, which is also the largest export destination for Chinese products," Le Brun said.
The leaders of Germany, France, Italy and Spain will meet in Rome later in the day in an attempt to restore confidence in the euro zone ahead of an EU summit in Brussels next week.
Friday's meeting will look for ways to achieve fiscal and banking union in the euro zone and, more urgently, it may also be the occasion for Spain to formally request assistance of up to 100 billion euros for its struggling banks.
An audit released on Thursday found Spanish banks would need up to 62 billion euros in extra capital to weather adverse circumstances.
"We're going to see a lot of volatility in the market especially since the situation in Europe is not yet resolved, central banks are planning or talking about more stimulus, but it doesn't look to be helping markets stabilise," said Natalie Robertson, an analyst with ANZ.
"Markets are going to remain under pressure for the time being, but we do see some improvement towards the end of the third quarter, going into the fourth quarter."
