OIL FUTURES: Crude Falls; European Share Prices, FOMC In Focus

TOKYO (Dow Jones)--Crude-oil futures pared steep morning losses in Tuesday's Asian afternoon trade, tracking stabilizing equities markets.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September traded at $79.75 a barrel at 0649 GMT, down $1.56 in the Globex electronic session. September Brent crude on London's ICE Futures exchange fell $1.09 to $102.65 a barrel.

Both Brent and Nymex contracts tumbled as trading got under way in Asia, hitting six-month and 10-month lows, respectively.

However, by mid-morning, prices had stabilized and the two contracts started a slow climb back. Traders said oil market participants are watching how equity markets react when trading begins in Europe. At the same time, they are hopeful that announcements after the U.S. Federal Open Market Committee meeting later Tuesday will indicate the Federal Reserve will embark on a third round of economic stimulus, referred to as "quantitative easing."

"Any announcement that the Fed is instituting QE3 or a similar program would be bullish for oil prices," Peter Beutel, president of Cameron Hanover, said in a note to subscribers. "The lack of anything new would lead to more selling," Beutel said.

The markets will also seek direction from monthly global demand outlooks that the U.S. Energy Information Administration and OPEC will issue later in the day.

Traders are increasingly worried about the recurrence of a financial crisis similar to the one that began in the autumn of 2008, when crude fell from historical highs well above $100 a barrel to around $30, said Koichiro Kamei, an analyst with Market Strategy Institute. "But I don't think it will really happen. There is still substantial demand from emerging markets," Kamei said.

"What you're seeing is not fundamentally driven, it's sentiment-driven," Mark Pervan, head of commodities research at ANZ in Melbourne, said.

"The Dow Jones is off and oil markets are going to track that very closely. The selling you're seeing is from investment funds, which are particularly sensitive toward energy markets," he said.

On the Shanghai Futures Exchange, the benchmark December fuel oil contract last traded at CNY4,869/ton, down CNY93, or around 1.9%.

Nymex reformulated gasoline blendstock for September--the benchmark gasoline contract--fell 116 points to $2.6800 a gallon, while September heating oil traded at $2.7945, 72 points lower.

ICE gasoil for August changed hands at $877.75 a metric ton, down $22.50 from Monday's settlement.