Crude up on Chinese promise

Promise: Oil prices got a boost from their 2012 low on hope of Chinese growth.

News Wires 

21 May 2012 08:33 GMT

Brent crude rose towards $108 per barrel on Monday, recovering from a 2012 low, on hopes China could take steps to stimulate growth and lift fuel demand at the world’s second largest oil user, although concerns about the euro zone crisis capped gains.

Chinese Premier Wen Jiabao called for additional efforts to support growth on Sunday, while Goldman Sachs said world oil demand was growing despite recent weak economic data, Reuters reported.

The comments proved to be a bright spot for oil markets, battered in the past weeks by fears Greece’s political turmoil could spread to other countries in Europe.

Brent crude rose for the first time in four sessions, adding 68 cents to $107.82 a barrel. Front-month prices slipped to a 2012 low on Friday. In the last three weeks, Brent has shed almost 11% -the  largest three-week fall since May 2011.

US crude gained 44 cents to $91.92, its first rise in seven sessions.

“We believe that the extent of recent sell-off was largely unwarranted,” Goldman Sachs analysts said in a note released on 18 May, pointing to better oil demand and tighter crude supply.

Implied world oil demand in the past three months was “up more than 1 million barrels per day (bpd) over last year” despite concerns about softening economic data, the bank said.

“With Iranian crude oil increasingly shut out of the world oil market, the supply-demand balance in the Organisation for Economic Co-operation and Development countries swung back into deficit once again in April, suggesting a return to higher prices will be needed to balance the oil market in second half of 2012,” Goldman said.

Talk that China could implement a stimulus plan in the near future prompted investors to cover short positions during Asia trade on Monday, said Ken Hasegawa, a commodity sales manager at Newedge Japan.

“I don’t think we’ll see a sharp rebound. What we can see now is some correction after oil lost $20 from the previous high.”

Uncertainty over the euro zone debt crisis would cap gains in oil prices, Hasegawa said.

Europe remained mired in crisis despite a call by world leaders for Greece to stay in the monetary union and for Europe to balance austerity with growth during the weekend G8 meeting.

They offered no specific prescription for debt-crippled Greece which holds fresh elections next month.

G8 leaders also raised the pressure on Iran on Saturday, signalling their readiness to tap into emergency oil stockpiles quickly this summer if tougher new sanctions on Tehran threaten to strain supplies.

The statement came days ahead of nuclear talks between world powers and Iran in Baghdad.