Crude Oil Advances as China Pledges Help on European Debt Crisis
February 16, 2012, 8:21 AM ESTBy Grant Smith and Ben Sharples
Feb. 15 (Bloomberg) -- Oil rose after China pledged to help resolve Europe’s debt crisis, easing concern that economic growth will slow and curb fuel demand. Brent crude may advance to $120 a barrel, according to Goldman Sachs Group Inc.
Crude futures in New York increased as much as 1.1 percent. China will invest in Europe’s bailout funds, the nation’s Central Bank Governor Zhou Xiaochuan said in Beijing. European Union finance ministers will today prod Greece to deliver budget cuts in exchange for a second aid package. Israeli Prime Minister Benjamin Netanyahu blamed Iran on Feb. 13 for car bombings of Israeli diplomatic vehicles in New Delhi and the Georgian capital of Tbilisi.
“We have seen some signs of stability in the debt crisis,” said Sintje Boie, an analyst at HSH Nordbank in Hamburg, who predicts Brent crude will surpass $120 a barrel in coming weeks. “The market is all about fears of supply disruption, as we have these tensions in the Middle East and especially the conflict with Iran.”
Oil for March delivery rose as much as $1.09 to $101.83 a barrel in electronic trading on the New York Mercantile Exchange and was at $101.53 at 11:27 a.m. London time. It fell 17 cents to $100.74 yesterday, the lowest close since Feb. 10. Prices are 20 percent higher the past year.
Brent oil for April settlement gained 65 cents to $118 a barrel on the ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate for the same month was at $16.12, compared with $17.42 yesterday.
Vulnerable Market
A European Union ban on imports of Iranian oil will take effect in July. Concern that a confrontation between the Persian Gulf producer and Western nations may block shipments through the gulf has added about $10 to the price of crude, according to analysts at UBS AG, Switzerland’s biggest bank.
The world’s oil market is increasingly vulnerable to rising prices as spare production capacity declines, Goldman Sachs said in a report dated yesterday. Unused crude-output capacity at the Organization of Petroleum Exporting Countries is down 26 percent since March to 4.685 million barrels a day in January, according to data compiled by Bloomberg. That’s the lowest level since November 2008.
“OPEC spare capacity is approaching dangerously low levels, just as world economic growth is beginning to strengthen,” David Greely, head of energy research at Goldman Sachs in New York, said in the report. Measures by the European Central Bank and Greece “have substantially reduced the risk of a systemic financial event in Europe,” he said.
Stockpiles
Global stockpiles are increasing more slowly than the five- year average, Greely said. Inventories held by the 34 nations in the Organization of Economic Cooperation and Development climbed by 11.4 million barrels in January, less than the five-year average increase of 43.2 million, according to preliminary data in the International Energy Agency’s monthly oil market report.
Zhou’s remarks in China echoed comments by Premier Wen Jiabao yesterday and sparked optimism Europe will overcome a debt crisis that threatens renewed market turmoil. EU finance ministers will hold a teleconference today to urge Greece to do more to clinch an aid package worth 130 billion euros ($171 billion) and about 100 billion euros of debt relief from private bondholders. The nation’s two biggest political parties will provide written commitments to austerity pledges, a government official in Athens said.
Oil ‘Well Bid’
Oil “remains relatively well bid as if the market is optimistic that something will occur in Europe,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity markets newsletter in Sydney, who forecasts New York crude may rise to $104 a barrel if it breaks through technical resistance at $102.50.
New York prices fluctuated earlier after reports showed a rise in stockpiles and a slump in gasoline demand in the U.S., the world’s biggest oil user.
Crude stockpiles climbed 2.9 million barrels last week, the American Petroleum Institute said. An Energy Department report today is forecast to show a gain of 1.5 million barrels, according to a Bloomberg News survey of analysts.
The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.
Motor fuel demand slid to the lowest level since MasterCard Inc.’s SpendingPulse report started in July 2004. U.S. drivers bought 8.01 million barrels of gasoline a day in the seven days ended Feb. 10, down 3.1 percent from a week earlier, the report showed. Gasoline use over the previous four weeks was 5.3 percent below the 2011 period, the 47th consecutive decline in that measure.
--With assistance from Ann Koh in Singapore. Editors: John Buckley, Rachel Graham
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
