Bloomberg News

Oil Halts Two-Day Advance on China Growth Slowdown, Naimi Pledge

April 13, 2012

Oil halted a two-day advance in New York after China’s economy grew at the slowest pace in 11 quarters and Saudi Arabia’s oil minister said the kingdom is determined to see lower prices.

Futures fell as much as 0.8 percent after government data today showed China’s gross domestic product expanded 8.1 percent from a year earlier in the first quarter, after an 8.9 percent gain in the final three months of 2011. Industrial output rose at a faster pace in March, while retail sales growth accelerated. Saudi Arabia, the world’s biggest crude exporter, considers prices too high and is working toward damping them, Minister Ali al-Naimi said today.

“The market is still range-trading, albeit in a slightly lower range than previously,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd., who predicts Brent crude will remain supported at $119 a barrel. “Despite today’s GDP number, expectations are still that the Chinese economy will have a soft landing.”

Crude for May delivery fell as much as 78 cents to $102.86 a barrel in electronic trading on the New York Mercantile Exchange and was at $103.31 at 1:25 p.m. London time. The contract gained 0.9 percent yesterday to $103.64, the highest close since April 3. Prices are little changed this week.

Brent oil for May settlement decreased 4 cents to $121.67 a barrel on the London-based ICE Futures Europe exchange. Prices are down 1.4 percent this week, heading for the fourth weekly decline in five. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $18.35, compared with $18.07 yesterday. Front-month Brent futures expire today. The more-actively traded June contract was 11 cents lower at $121.41.

Technical Resistance

Oil in New York has technical resistance along its 50-day moving average, around $104.22 a barrel today, according to data compiled by Bloomberg. Futures traded above this indicator for the first time this week yesterday before settling below it. Sell orders tend to be clustered near chart-resistance levels.

Gross domestic product in China was forecast to expand 8.4 percent, according to the median estimate of 41 economists in a Bloomberg News survey before the report from the National Bureau of Statistics. Industrial production increased 11.9 percent in March from a year earlier, today’s statistics bureau report showed. That compared with an 11.6 percent median estimate in the Bloomberg News survey and an 11.4 percent gain in January and February combined.

Negative Surprise

“The GDP numbers were a negative surprise for growth- related assets, particularly oil,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said by telephone today. “The fall so far is really a neutral situation on the China numbers because of the conflicting signals between the backward looking GDP and the forward looking industrial production.”

China, the world’s second-biggest consumer of oil, cut daily crude processing by 3 percent in March from a month earlier as refineries started maintenance, according to data released by the National Bureau of Statistics today.

Oil prices rose yesterday after central bank officials in the U.S. and Japan indicated they will use monetary policies to stimulate their economies. Federal Reserve Vice Chairman Janet Yellen and William C. Dudley, president of the Federal Reserve Bank of New York, endorsed the view that borrowing costs will stay near zero through 2014. The Bank of Japan (8301) “will pursue powerful easing” to overcome deflation, according to Governor Masaaki Shirakawa.

Prolonged High Prices

Saudi Arabia is working toward its goal of seeing prices drop by highlighting there’s no shortage of supply, al-Naimi said in a statement in Seoul today. Stockpiles held by consumer nations are rising and the kingdom is producing 10 million barrels a day, he said. That’s close to the fastest rate in at least 31 years, official data shows.

“We are seeing a prolonged period of high oil prices,” al-Naimi said. “We are not happy about it.”

Fundamentally, the oil market remains balanced and there is no lack of supply, he said.

Credit Suisse Group AG raised its forecast for Brent crude in 2012 by 20 percent to $125 a barrel because of political risks to oil supply and rising demand. Tougher U.S. and European embargoes against Iran will cut supply and stoke tension in the Middle East, which may push Brent to $130 a barrel at the end of the year, the bank said today in a report.

“Relatively strong oil demand growth will remain a critical fundamentals driver,” Jan Stuart, a New York-based analyst, said in the report. “Further stress on oil markets derives, we think, from lasting and occasionally intensifying political uncertainty affecting the supply side. In this environment, oil prices should mostly trend higher.”

Talks With Iran

Oil may fall next week on speculation that negotiations between Iran and world powers over the Persian Gulf nation’s nuclear program will reduce tension that has bolstered prices, a Bloomberg News survey showed. Sixteen of 33 analysts, or 49 percent, forecast prices will decline through April 20. Last week, 57 percent of surveyed analysts expected a decline.

The five permanent members of the United Nations Security Council -- Britain, China, France, Russia and the U.S. -- plus Germany, the so-called P5+1, will hold talks with Iran for the first time in 15 months when they convene in Turkey on April 14. The previous round of negotiations ended without agreement in January 2011.

The participants may discuss postponing a planned European oil embargo against the Persian Gulf nation in exchange for Iranian promises to stop refining uranium, according to Peter Jenkins, who hosted Iran negotiations as the former U.K. ambassador to the International Atomic Energy Agency in Vienna.

To contact the reporter 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


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