Oil at Two Month High on China Demand Hopes

Source: www.gulfoilandgas.com 3/1/2016, Location: Asia

Oil prices rose on Tuesday 1st March 2016 after China's surprise monetary policy easing stoked expectations for higher oil demand from the world's largest commodities consumer and signs emerged that a global supply glut was starting to deflate.

"Oil prices are up due to the Chinese reserve ratio requirement cut and reports on dropping oil production," according to Tamas Varga, oil analyst at London brokerage PVM Oil Associates. China has announced a cut in the amount of cash that banks must hold as reserves, positively surprising markets as the move frees up an estimated $100 billion for fresh lending.

Benchmark Brent crude futures were up 44 cents at $37.01 a barrel at 1304 GMT, the highest in eight weeks. US crude futures were trading at $34.50 a barrel, up 75 cents and close to a four-week high reached on Friday.

On the other hand, Russian President Vladimir Putin spoke of "more radical" measures to balance the global oil market, on top of a production freeze plan jointly pursued by Moscow with Saudi Arabia, Qatar and Venezuela. Crude prices have trended higher since hitting 12-year lows under $30 a barrel between late January and mid-February. Despite the rebound, the market is still down about two-thirds from highs above $100 in mid-2014. Discussions among major oil producers, including Saudi Arabia and Russia, agreeing to a production freeze are unlikely to reduce a global overhang in supply of well over 1 million barrels per day (bpd), analysts said.

Exports from Iraq's southern fields dropped in February to an average of 3.225 million bpd, the country's oil ministry said. OPEC supply fell to 32.37 million bpd in February, the survey showed.

The International Energy Agency's oil division head, Neil Atkinson, said oil prices had 'bottomed out' and were set to rise throughout this year and next. He said a price rally would be limited in the medium term by U.S. shale production costs of $40 to $50 a barrel.


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