Oil Prices Rebound After Sharp Sell-Off

Oil prices rebounded Wednesday in early trading, following sharp losses in trading Tuesday. Oil prices, measured by the front month WTI future, fell 2.5 percent on Tuesday and Brent crude futures fell in tandem, as global growth fears and the resolution of a labor dispute between Statoil STO and its Norwegian workers was resolved.

Oil prices had risen in previous sessions on fears that Statoil, the world's eighth largest producer, would shut down all production at its offshore rigs. However, the two sides were able to resolve the labor dispute, focused on pension benefits, and thus avert a shutdown.

Oil prices began to rally around 2:30 pm on Tuesday and have traded higher since. WTI futures traded as low as $83.65 per barrel before rallying. The price of the front month future for WTI traded as high as $85.45 in early New York trading Wednesday.

The rise in oil prices follows other risk-on sentiment witnessed in financial markets Wednesday. The dollar index was weak in early trade, falling nearly 0.15 percent to 83.29. The weak dollar is driving the risk-on trade, as commodities rallied broadly. Gold prices rose 0.4 percent to $1,573.40 per ounce and silver futures rose 0.84 percent to $27.04 per ounce. Strength was also seen in agricultural commodities such as corn, which rose 2.79 percent.

Risk-on sentiment was also buoyed by relaxed global growth fears. European leaders announced that Spain would get the first bailout payment to recapitalize its distressed banking system by the end of the month. The first payment is set total $34 billion of a total $125 billion and is set to be dispersed by the European Financial Stability Facility (EFSF). The EFSF is set to issue 15-year bonds that carry a AA+ rating and will be distributed to the Spanish banks through the Spanish bailout fund, the FROB. The banks can either choose to keep the bonds as Tier 1 Capital and earn the interest on them or use them as collateral to get cheap cash at the European Central Bank (ECB).