Last week, oil capped its biggest weekly decline since 2016 on concerns that weakening economic growth and surging US supply will lead to a surplus next year, overwhelming OPEC's efforts to stabilize the market. Brent crude oil prices rose 2.2% to $51.61 after undercutting $50 overnight.
The price drop has caused United States shale oil producers to curtail drilling plans for next year.
Crude dropped to the lowest level since July 2017 as concerns over a weaker global economy and turbulence in Washington overshadowed signals from OPEC that it may deepen output cuts. "$50 is a psychological support level (for Brent)", Margaret Yang said.
Markets across asset classes have come under pressure as the USA government shutdown that began just after midnight on Saturday intensified growth concerns.
Investors flocked to safe-haven assets such as gold and government debt at the expense of crude oil and stocks, analysts say. The market settled early ahead of the Christmas holiday.
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The IG Client Sentiment Report still shows83.1% of traders are still net-long crude compared to 85.9% last week, with the ratio of traders long to short at 4.91 to 1. Even with the day's gains, USA crude has still lost almost 40 per cent from its October closing high at more than US$76 a barrel.
Apart from this, weakening of crude oil prices may have some positive impact on the overall market as both factors have an inverse correlation between them as depicted in the below chart. Global equities have fallen almost 9.5 per cent so far in December, their biggest one-month slide since September 2011, when the eurozone debt crisis was unfolding.
Broader financial markets have been under pressure on worries about a global economic slowdown amid higher US interest rates and the US-China trade dispute. But a decision by OPEC and its allies led by Russian Federation earlier this month in Vienna to implement 1.2 million barrels per day production cuts has at least for the time being stabilized the price outlook amid expectations that the reduction would prevent a surplus from building in the early part of 2019.
"The planned cuts have been carefully studied, but if it doesn't work, we always have the option to hold an extraordinary OPEC meeting and we have done so in the past", Suhail Al Mazrouei, who is also OPEC president, said in Kuwait.
"U.S. equity futures are trading a bit firmer this morning triggering some little buying interest in the oil markets", said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.