Perth: Oil leapt more than $3 to over $64 a barrel on Monday, fuelled by top exporter Saudi Arabia’s plans to cut December supplies to Asia, a weaker dollar and hopes that global economies’ plans to lift growth could avert recession.
Saudi Arabia has told refiners in Asia it would cut December supplies by 5%, providing the most visible evidence yet that it is adhering to Opec’s agreement last month to reduce output.
US light crude for December delivery rose $2.96, or 4.55%, to $64.00 a barrel, after rising as much as $3.26. London Brent crude rose $1.85 to $59.20.
“The proposals made at the G20 meeting and the relief package out of China really helped the markets this morning,” said Mark Pervan, a senior commodities analyst at the Australia & New Zealand Bank.
At the G20 group’s annual meet in Brazil, finance ministers and central bank governors representing 90% of the world’s economy vowed to take all necessary measures to get financial markets back on their feet and counter the credit crisis.
China went a step further and launched a huge stimulus plan on Sunday worth nearly $600 billion, kicking off what could be a round of big spending or interest rate cuts by leading economies to stave off a recession in many countries
China’s solid government spending package to boost domestic demand is “good news” that will help the global economy ride out the financial crisis, the International Monetary Fund’s managing director said.
The US currency weakened broadly after data on Friday showed the US economy shed more jobs than expected in October. But the yen fell against the dollar and euro on Monday as Asian shares were lifted by strong Wall Street gains and by China’s launch of its huge stimulus plan.
Oil lost nearly 10% last week and dipped below $60 the previous week, its lowest since March 2007, after a string of dismal economic data from the United States sharpened fears of a protracted global recession and growing US energy stockpiles underscored falling demand in the world’s top energy consumer.
Oil’s tumble from July highs has already spurred Opec to rein in supply from 1 November, and some members of the cartel are talking of reducing production further.
Opec will cut oil output again if the trend towards lower prices and slowing demand growth are unchanged when the group meets in December, Iran’s Opec Governor Mohammad Ali Khatibi told Reuters on Sunday, adding to comments by Venezuela’s oil minister Rafael Ramirez last week that Opec should act again to reduce output by at least 1 million barrels per day (bpd).
Iran’s Khatibi added that the credit crisis and economic slowdown could shave as much as 3 million bpd from global crude demand.