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UPDATE 2-Brent rises above $112 after Japan eases policy

Published: September 19, 2012 | 7:15 am
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* Bank of Japan to lift asset purchases amid global slowdown
* China manufacturing sector seen staying weak
* Coming Up: EIA weekly oil report; 1430 GMT (Updates prices)

SINGAPORE, Sept 19 (Reuters) – Brent crude rose above $112 a barrel on Wednesday after Japan’s central bank announced it would boost asset purchases to stimulate the economy of the world’s third biggest oil consumer.

Japan’s move to ease monetary policy in the face of a slowing global economy helped oil prices erase early losses fuelled by concerns over demand and signs that top oil exporter Saudi Arabia was pumping more oil to bring down prices.

“This is bullish for the Japanese economy, the movement in oil prices is a reaction to the BOJ announcement,” said Ken Hasegawa, a commodity sales manager at Newedge Japan.

The Bank of Japan expanded its asset buying and loan programme, currently its primary monetary easing tool, by 10 trillion yen ($127 billion) to 80 trillion yen, with the rise meant for purchases of government bonds and treasury discount bills.

Japan’s action follows similar bond-buying strategies announced earlier by the U.S. Federal Reserve and the European Central Bank, hoping the liquidity boost would help spur economic activity.

Brent November crude rose 55 cents to $112.58 a barrel by 0627 GMT, snapping two straight days of losses.

U.S. October crude was up 62 cents at $95.91 a barrel. The contract expires on Thursday. U.S. November crude rose 58 cents to $96.20 a barrel.

Wednesday’s price gains, if sustained, will worry oil producers, particularly members of OPEC, who are working to boost supply to bring down prices.

On Tuesday, a senior OPEC Gulf source said Saudi Arabia was pumping around 10 million barrels per day (bpd) and would take action to keep prices around $100. OPEC and other producers outside the cartel would be moving to pump more oil to keep prices from spiking, the source added.

“Clearly after the rally from last week, it is easy to understand why Saudi Arabia was keen to send a message to the market that it would be acting to lower oil prices,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Brent has gained 27 percent since hitting a 2012 low of $88.49 in June as investors have worried about the security of supply from the Middle East and North Africa and on expectations for commodity prices to rise on economic stimulus moves by the United States, Europe and China.

“High oil prices at these levels are unsustainable and will end up weakening demand and slowing economies, and that isn’t a good thing in the long run for any oil producer,” Spooner said.

Crude and distillate stocks were expected to be up 1.0 million barrels, with gasoline inventories up 1.2 million barrels, a Reuters survey of analysts taken ahead of weekly reports showed.

EYE ON CHINA

After Japan, investor focus turns to China, the world’s second-largest oil consumer, with a preliminary reading of its manufacturing activity for September set for publication on Thursday, along with similar data from the United States and Europe.

“I’m not expecting to see any change in the trend of the past few months, things are likely to get worse before they get better,” Spooner said.

“The anticipation is that the Chinese economy is going to remain weak and it’s going to take some time before we start to see a turnaround.”

Investors are also continuing to fret over Europe’s debt crisis with concern growing that Spain, which is at the heart of the euro zone debt crisis, is unable to lower its massive public deficit and control its soaring debt.

“The decisions the Spanish government needs to take are hard, and it won’t come easy, ideally they would like to avoid that option,” Spooner said.

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