MW: Oil prices jump after China’s interest rate cut
Crude-oil futures made sizeable gains on Friday after the People’s Bank of China announced a surprising swath of interest-rate cuts, indicating the country is taking its economic slowdown seriously.
In a surprise move on Friday, the People’s Bank of China cut its one-year deposit rate by 0.25 percentage point, and its one-year loan rate by 0.4 percentage point. It also said that it will allow more flexibility in deposit rates.
Ahead of that, European Central Bank President Mario Draghi signalled that the central bank was ready to step up asset-buying.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January CLF5, +1.90% jumped $1.47, or nearly 2%, to $77.33 a barrel in the Globex electronic session, heading towards levels not seen in more than a week.
January Brent crude on London’s ICE Futures exchange LCOF5, +2.13% surged $1.79, or 2.3%, to $81.12 a barrel.
Brent crude has been pushing towards the $80 mark since the last trading session despite weak economic data from China and Europe. .
Draghi added fuel to futures moves after indicating that officials were ready to step up asset buying, if inflation fails to show signs of getting back fast to the ECB’s target.
“We will continue to meet our responsibility--we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us,” Draghi said in a speech to a banking conference.
Gains won’t last: Still, some say there isn’t much to alter the downbeat views on oil prices. “This is just a short-term reaction and will not change the bearish view unless OPEC cuts output substantially next week (rather unlikely),” said Carsten Fritsch, analyst at Commerzbank.
Traders have been reluctant to make new commitments ahead of the OPEC summit on Nov. 27, analyst Tim Evans at Citi Futures said. There’s growing confidence that the Organization of the Petroleum Exporting Countries will take action to cut some supply at next week’s meeting.
Another key event on next week’s calendar is the Nov. 24 deadline for the expiry of Iran’s nuclear agreement.
“Although the market has been less focused on the Iranian nuclear talks, we should note that a breakthrough in talks that lifts sanctions would add to the wider market sense of oversupply, putting additional pressure on other producers to make room for additional Iranian output,” Evans said.
Other supportive elements for energy markets include stronger refinery operating rates and stronger fuel demand as winter approaches, catapulted by an early cold wave in the U.S. The U.S. winter of 2013 saw a 78.5% increase in natural gas prices from November to February, and an 8.7% increase in crude oil prices from November to December, OCBC economist Barnabas Gan said.
Gan expects West Texas Intermediate and Brent crude to regain some lost ground to $80 a barrel and $85 a barrel respectively by year-end.
Meanwhile, China disclosed the exact size of the first phase of its strategic petroleum reserves for the first time at 91 million barrels across four sites.
Nymex reformulated gasoline blendstock for December RBZ4, +1.91% — the benchmark gasoline contract — rose 2.3% to $2.0743 a gallon. Natural gas for December delivery NGZ14, -4.28% fell 2.5% to $4.377 per million British thermal units.
