Oil Recovers Most of Early Losses

After plunging in morning trading, crude recovers in the wake of a Fed rate cut.
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Crude-oil futures fell hard in early morning trading on the New York Mercantile Exchange on the back of widespread selling in global equity markets before bouncing back by midday.

After reaching a low of $86.11 a barrel, West Texas crude retraced most of its losses and was recently trading 87 cents lower at $89.70 a barrel.

Reformulated gasoline was down 3 cents to $2.27 a gallon. Heating oil slid 5 cents to $2.46 a gallon. Natural gas was down 12 cents at $7.87 per million British thermal units.

Worries of a global economic slowdown were responsible for the early fall in energy futures. Equity markets in Europe and Asia plunged in the first two days of trading this week, some by nearly 10%.

U.S. stocks were down sharply as well, but declines were staunched by an emergency 75-basis-point cut in the

Fed

funds rate delivered before the opening of market activity today. Monday had been silent in the U.S. due to a trading holiday.

The decrease in the fed funds rate, which makes borrowing cheaper and may allow for more liquidity in the marketplace, sent traders scurrying back into commodities like oil and gold later Tuesday morning, according to Brandon DiTullio, commodities broker at Nextsource Trading.

However, the WTI crude futures curve is strongly backwardated, meaning nearer-term contracts are at higher levels than those further in the future. The March contract, which will begin trading as the near-term contract next week, is off $1.40 at $88.72 a barrel. "The curve definitely implies a looming selloff in the crude market," DiTullio said.

With the crude futures curve holding a sharply downward slope, equity prices will need to rebound for oil to regain $100 a barrel, according to DiTullio.

Elsewhere, stocks in the energy complex are broadly lower.

Exxon

(XOM) - Get Report

is down 2.4% at $83.05 a share. Shares of

BP

(BP) - Get Report

fell 4.7% to $62.00, and

ConocoPhillips

(COP) - Get Report

is off 3.5% at $70.36.