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Brent up above $112 on stimulus hopes, oil supply hiccups

Published: August 9, 2012 | 7:40 am
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Brent crude rose for a fifth session on Thursday to above $112 a barrel on hopes that China will roll out more stimulus measures to boost its slowing economy and fuel demand at the world’s second largest oil consumer.

A fall in U.S. crude inventories last week and supply disruptions caused by a storm in the Gulf of Mexico, as well as lower North Sea oil output and tensions in the Middle East, also kept oil prices high.

Brent crude for September delivery was at $112.40 a barrel by 2:45 a.m. EDT, up 26 cents. U.S. crude rose 28 cents to $93.63.

Risk appetite among investors has improved on signs that policymakers from the United States, Europe and China could take action to revive global economic growth.

Annual growth in China’s factory output slowed to its weakest in more than three years in July, increasing expectations that Beijing will take further policy steps to support an economy that has been sliding for six straight quarters.

The European Central Bank said last week it may again buy government bonds while a top Federal Reserve official said the central bank should launch another bond-buying program of whatever size and duration is necessary to get the U.S. economy back on its feet.

“Sentiment has turned around from the end of June on supportive factors such as potential stimulus packages from the Federal Reserve Bank and the European Central Bank,” said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investment.

“The demand-supply balance is also getting more healthy than several months ago. I don’t see any negative factors at the moment.”

Refinery throughput in China inched up 1.1 percent in July, reversing a run of declines for three straight months, but remained the second lowest so far this year as demand remained weak.

Oil is also supported by a larger than expected decline in U.S. crude stockpiles, supply disruptions in the North Sea and the Gulf of Mexico, and a fall in Iranian exports due to Western sanctions.

U.S. crude oil stockpiles fell more than expected last week despite rising imports, federal government data showed. Analysts say the shutdown of an Enbridge pipeline reduced supply.

In the North Sea, oil output is set to plunge 17 percent in September due to oilfield maintenance and natural decline while Mexico has closed two of three main oil export ports in the gulf due to high waves caused by Tropical Storm Ernesto.

Oil could gain more support from geopolitical tensions in the Middle East as the Syrian conflict could intensify other tensions and violence in the region and spill into neighboring Iraq, Barclays analyst Paul Horsnell wrote in a note.

“If supply tightness accompanied by good fundamental data and shocks such as storms, refinery fires and other outages were behind most of the leg up in crude prices so far, in our view, geopolitical developments look likely to take on the baton from this point,” he said.


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