LONDON: Oil reversed early losses and rose towards $78 a barrel on Thursday after a bounce in equities overshadowed earlier news pointing to flatter economic growth in the world’s number two oil consumer China.
European shares turned positive after JP Morgan Chase & Co reported second-quarter earnings, adding to evidence of the strong correlation between oil and equities.
Front-month US crude rose 40 cents to $77.44 a barrel by 1055 GMT. ICE Brent was up 40 cents at $77.17 a barrel.
"Crude is tracking equities. For the bullish momentum to hold, we will need to break above $78-$79 a barrel," said analyst Andrey Kryuchenkov of VTB Capital.
Earlier prices dipped to a low of $76.50 a barrel after news that China’s economy cooled to 10.3 percent growth in the second quarter in a slowdown that is likely to extend over the rest of the year, the National Bureau of Statistics said on Thursday.
The doubling of oil prices from the late 2008 trough below $40 a barrel is widely attributed to improving fuel demand led by Asia as the global economy pulls out of recession.
Anything seen as a risk to this narrative, such as the latest macroeconomic data out of China, tends to dampen sentiment in the oil market.
Tight Band
Earlier this week, oil prices looked set to breach a critical technical resistance level — the 200-day moving average near $78.50 a barrel — in a move that some thought would take oil into a new trading range straddling $80 a barrel.
But signs of weaker growth have since doused sentiment and technical analysts now see oil trading in a tight band between $76-$78 a barrel before pulling back to the low $70s.
US Federal Reserve minutes on Wednesday showed officials revised their growth outlook lower and cited further downside risk.
"Doubts, it seems, are never far away and it does not take a lot to draw them back to the forefront," said head of oil brokers PVM David Hufton in a research note which referred to the Fed minutes.
Oil market participants await US economic indicators, including industrial output and weekly jobs data, due later on Thursday.
Stocks data from the US Energy Information Administration on Wednesday were widely viewed as neutral for the oil market.
A near 5 million barrel drop in crude oil was countered by larger-than-expected product builds as refiners boosted rates above 90 percent. —Additional reporting by Alejandro Barbajosa.
