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Oil rises 3% Tuesday as China moves to stimulate economy

By Myra P. Saefong / MarketWatch

Petroleumworld 01 15 2019

Oil futures settled higher Tuesday, recouping some of the losses suffered over back-to-back sessions as China took steps to boost its economy a day after another round of downbeat data.

Just a day earlier, oil fell amid further signs of economic weakness in China. But reports Tuesday, suggesting that China was taking greater steps to shore up flagging growth, lifted expectations that strong demand for oil from the world's second-largest economy could be sustained.

The People's Bank of China will increase efforts to spur their economy by improving credit availability for smaller companies, cutting taxes and ramping up infrastructure investments, Beijing officials said Tuesday. Trade data earlier this week were poorer-than expected, underlining worries that the country's economy was locked in a downturn that could weigh on global expansion amid a protracted tariff spat between China and the U.S.

“Essentially we have gone from pricing a recession back to a more moderate outlook within the span of just six weeks,” according to analysts at consulting firm JBC Energy, writing in a research note. “Recent optimism, among other aspects, has probably been built on the perceived improvement in U.S.-Sino relations, as well as China's efforts to stimulate its economy,” they said.

Time Crude Oil Feb 2019 2 Jan 8 Jan 10 Jan 14 Jan 4 Jan US:CLG9 $46 $48 $50 $52 $54

Against this backdrop, West Texas Intermediate crude for February delivery CLG9, +2.93%  rose $1.60, or 3.2%, to settle at $52.11 a barrel on the New York Mercantile Exchange. Prices had closed up for nine consecutive sessions through last Thursday, to their highest since early December, before mild drops on Friday and Monday.

March Brent crude LCOH9, +2.61% rose $1.65, or 2.8%, to $60.64 a barrel on ICE Futures Europe.

Crude prices have risen by more than 20% from annual lows reached at the end of 2018, on signs a global oversupply is being brought into balance, in part because of a production pledge by Organization of the Petroleum Exporting Countries-plus members. December's low was made on back of a 40% price plunge during the fourth quarter of last year, from four-year highs reached as recently as the start of October.

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“An improvement in overall risk appetite” has taken further pressure off oil prices, Craig Erlam, senior market analyst at Oanda, said in a note Tuesday. U.S. benchmark stock indexes headed higher Tuesday.

“The output cut agreed between OPEC+ is expected to support prices in longer term,” he said. So “over the coming weeks and months, I expect downside in oil will be limited unless we see a surprising lack of compliance among participating producers, which was not the case previously.”

Weekly U.S. petroleum supply data from the American Petroleum Institute will be released late Tuesday, followed by official data from the Energy Information Administration Wednesday.

Analysts polled by S&P Global Platts expect the EIA to report a fall of 250,000 barrels in crude stockpiles for the week ended Jan. 11. Gasoline supplies likely added 2.6 million barrels and distillate inventories were expect to have climbed by 900,000 barrels, the survey showed.

Among monthly oil reports, the EIA's short-term energy outlook released Tuesday revealed a 0.8% reduction to the 2019 forecast on Brent crude prices to $60.52. The EIA's forecast for WTI this year remained unchanged at $54.19. For 2020, the government agency sees an average of $60.76 for Brent and $60.76 for WTI, with U.S. output expected to climb to 12.86 million barrels a day.

“EIA estimates that U.S. crude oil production approached 11 million barrels per day in 2018, which broke the record set in 1970,” said EIA administrator Linda Capuano.

OPEC on Thursday is expected to release its monthly oil market report, followed by that of the International Energy Agency on Friday.

Back on Nymex, February gasoline RBG9, +3.38%  added 3.5% to $1.411 a gallon, while February heating oil HOG9, +0.89%  rose 1.1% to $1.872 a gallon.

Meanwhile, February natural gas NGG19, -4.01%  settled at $3.501 per million British thermal units, down 2.5%. Monday's gain was nearly 16%, the biggest single-session percentage climb since Nov. 14, according to Dow Jones Market Data. The level marked the highest settlement for a front-month contract since Dec. 27 as colder weather has boosted demand for the heating fuel.


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Reporting by Myra P. Saefong from MarketWatch.

01 15 2019 20:38GMT

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