Oil Up on Saudi Support, China; Poll Shows Less OPEC Output
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Oil prices jumped 3 percent on Monday after China moved to boost its slowing economy and Saudi Arabia pledged to work with other crude producers to limit market volatility, developments that fed hopes the oil selloff would end.
An advance on Wall Street was another supportive factor for traders and investors looking to raise bets on oil. For weeks, the benchmark S&P 500 index for U.S. stocks .SPX has mirrored moves in U.S. crude and vice versa.
“We seem to be back to the old play: China injecting money into their system, and the S&P playing along for a risk-on trade in oil,” said David Thompson, executive vice president at Powerhouse, an energy-focused broker in Washington.
Brent crude’s front-month futures contract LCOc1 was up 90 cents at $36 a barrel by 12:49 p.m. EST (1749 GMT), ahead of its expiry. Brent’s more active second month LCOc2 rose more than $1.20 a barrel at the session high.
U.S. crude’s front-month CLc1 rose by $1 to $33.78 a barrel.
Oil prices remain down about 70 percent from their mid-2014 highs above $100 a barrel, though a steady rebound over the past two weeks has had some traders and investors wondering whether the market has reached a near-term floor.
Even so, a Reuters poll of analysts showed them expecting crude to average at just over $40 a barrel this year.
China, the world’s largest oil importer, on Monday cut its reserve requirement ratio, the amount of cash banks must hold as reserves, for a fifth time in a year.
The Saudi cabinet said in a statement it “will always remain in contact with all main producers in an attempt to limit volatility and it welcomes any cooperative action”.
Banks such as Morgan Stanley and Barclays say that without an outright cut in output, a production freeze will not boost prices much.
“We think what it does represent, however, is an exercise in building broader cooperation between producers, and thereby is likely to prove a litmus test for building trust,” Barclays said.
Iran has been a stumbling block to the plan, with its target to raise output to reach pre-sanction export levels. Iran said Monday its exports rose over the past month, reaching a 1.75 million bpd peak.
The Reuters survey on OPEC output indicated the group’s production fell by 280,000 barrels per day (bpd) from January.
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