London: Oil prices were firmer above $112 on Friday as plans for economic reform in Spain temporarily eased investor concerns about Europe’s debt crisis, while heightened tensions between Israel and Iran also provided support.
Improved market sentiment helped lift Asian and European stock markets, base metals and gold after Spain announced a crisis budget for 2013 based mostly on spending cuts.
“It’s a broad-based risk-on rally,” said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt. “The trigger was the approval of the Spanish austerity measures yesterday which has temporarily eased some of the concerns about the eurozone debt crisis.”
Brent crude futures were up 50 cents to $112.51 a barrel by 0812 GMT, on track for a 15% quarterly gain. US crude was up 39 cents to $92.24, supported by an unexpected fall in crude oil and oil products inventories this week.
Victor Shum, managing director for downstream energy consulting at IHS Purvin & Gertz, said that supply risks in the Middle East and geopolitical worries were also lending support.
In a speech on Thursday at the United Nations General Assembly, Israeli Prime Minister Benjamin Netanyahu drew a “red line” for Iran’s nuclear programme, saying that Tehran would be on the brink of developing a nuclear weapon in less than a year.
Spain, beset by anti-austerity protests and threats of secession by Catalonia, has slashed ministry budgets by 8.9% for next year and kept public sector wages frozen for a third year.
Investors and traders are viewing the cuts as a step in the right direction in at least preparing the country to meet the European Central Bank’s conditions for buying their bonds.
Tim Waterer, senior trader at CMC Markets, said traders were thankful for “small mercies”, but warned the budget result could soon be forgotten if Spanish bond yields began escalating again. Spanish bank stress test results are due later today.
Brent futures are set to post their biggest quarterly gain in 1-1/2 years due to a combination of central bank monetary stimulus and Middle East tensions, which have tightened supply.
Brent is on track to gain around 15 percent over the quarter compared with a 20% drop for April to June. The US contract is set to advance 9 percent, the highest since the three months ending 31 December, 2011.
The stronger performance is due to a fall in exports from Iran as a European Union ban on insuring tankers carrying the Opec member’s crude came into effect on 1 July. The West provides insurance cover for most of the world’s shipping fleet.
On the stimulus front, the US Federal Reserve initiated a third round of measures to revive growth in the world’s biggest economy. This helped to ramp risk assets.
Yet the outlook for demand growth remains weak, and analysts at BNP Paribas warned that products such as US RBOB gasoline, which have performed strongly this year, cannot continue to defy gravity.
The market will be eyeing September’s Chicago PMI data, due later today, for clues as to how well the US manufacturing sector is doing. The PMI is expected to be unchanged at 53.
The final estimate of the Reuters/University of Michigan consumer sentiment index for September is also due, and forecast at 79 up from 74.3 in August. Reuters