BLBG:Oil Advances From Seven-Month Low As Drop May Be Overdone
Oil rebounded after closing below $90 a barrel for the first time in seven months amid speculation the drop was exaggerated and signs China will accelerate efforts to spur economic growth.
Futures rose as much as 1 percent in New York after reaching long-term technical support. China, the world’s second- biggest oil consumer, will intensify “fine-tuning” of policies, according to the second government statement in four days signaling a commitment to growth as domestic demand slows. Talks with Iran aimed at averting military action against OPEC’s second-biggest crude producer will resume today, according to a Western official.
“Fundamentally, the market is not so strong, but still the world economy is growing,” said Ken Hasegawa, a commodity- derivative sales manager at Newedge Group in Tokyo who forecasts prices will trade as low as $90 a barrel through June. “The downside might be limited.”
Crude for July delivery gained as much as 91 cents to $90.81 a barrel in electronic trading on the New York Mercantile Exchange and was at $90.35 at 2:12 p.m. Singapore time. The contract yesterday slid 2.1 percent to $89.90, the lowest close since Oct. 21. Prices are 8.6 percent lower this year.
Brent oil for July settlement increased 30 cents, or 0.3 percent, to $105.86 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.51, from $15.66 yesterday.
Fibonacci Retracement
Oil rebounded in New York after futures reached technical support at $89.83 a barrel, data compiled by Bloomberg shows. On the weekly chart, that’s the 50 percent Fibonacci retracement of the decline from $147.27, the intraday record high in July 2008, to the low of $32.40 in December that year. Buy orders tend to be clustered near chart-support levels.
While the 15.2 percent drop over the past 37 trading sessions has been more “powerful” and longer-running than last year’s declines, prices may not undergo a sustained rebound, Michael Lewis, an analyst at Deutsche Bank AG in London, said in a report today.
“With the still high level of speculative length in the crude oil market and ongoing contagion risk from Europe we expect any rebound in the crude oil price will prove short- lived,” Lewis said. “We thus favor selling any rallies.”
Long positions, or wagers on rising prices, on crude on the New York Mercantile Exchange outnumbered short bets by 139,182 contracts in the week ended May 15, that’s 15 percent higher than the average of Commodity Futures Trading Commission data compiled by Bloomberg going back to at least June 2006.
Leaders of the 27-nation European Union clashed yesterday in Brussels over France’s call for joint borrowing by governments in the euro area, and called on Greece to stick with the budget cuts needed to stay in the single currency.
Chinese Growth
China “must proactively take policies and measures to expand demand and to create a favorable policy environment for stable and relatively fast economic growth,” the government said on its website yesterday, summarizing a meeting of the State Council, or Cabinet.
The statement builds on Premier Wen Jiabao’s comments published May 20 showing a bigger focus on bolstering growth. Authorities this month cut banks’ required reserves for the third time since November.
Iran Negotiations
Talks with Iran on the nation’s nuclear program will resume today in Baghdad at 8 a.m. local, according to a Western official who spoke on condition of anonymity because the deliberations are being conducted privately. While the Persian Gulf nation denies it wants to make nuclear weapons, it has refused to cooperate with inspectors and is under multiple international sanctions.
Chinese, French, German, Russian, British and U.S. negotiators and Iran’s representatives didn’t issue a public statement as daylong talks recessed yesterday at almost midnight
Iran produced an average of 3.3 million barrels a day of crude in April, according to estimates compiled by Bloomberg. Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, pumped 9.8 million a day.
Oil dropped yesterday after an Energy Department report showed U.S. crude inventories rose 883,000 barrels last week to 382.5 million, the highest level since August 1990. Supplies at Cushing, Oklahoma, the delivery point for the New York futures contract, climbed 1.67 million barrels to a record 46.8 million.
Gasoline inventories shrank by 3.3 million barrels, the data showed. They were forecast to slip 650,000 barrels, according to the survey. Distillate stockpiles, a category that includes heating oil and diesel, fell 309,000 barrels compared with a 500,000 projected decline.
Refinery utilization unexpectedly dropped for the first time in six weeks and implied demand for crude and refined products decreased.
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Jacob Adelman in Tokyo at jadelman1@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net
