London: Oil climbed more than $1 to around $89 on Thursday as the dollar weakened and stock markets rose on some hopes for higher economic growth.
European shares hit a 26-month high on Thursday and Asian markets closed higher, boosted by expectations that economic stimulus combined with US tax cuts would boost consumption in the world’s biggest oil consumer.
The dollar slipped against a basket of currencies as US Treasury yields eased after a-23 basis point surge on Wednesday.
Benchmark US light crude oil futures for January rose more than $1 to a high of $89.42, up $1.14, before moving back to around $89.08 by 02:00 pm.
The front-month contract touched a 26-month high of $90.76 on Tuesday and fell 41 cents on Wednesday, pulled lower in part by concerns about a growing US deficit.
ICE Brent crude added 67 cents to $91.44. Traders and analysts said they were cautious ahead of a possible Chinese interest rate rise and a meeting this weekend of the Organization of the Petroleum Exporting Countries, which will look at its output targets.
OPEC appears unlikely to raise oil supply targets to cap an oil price rally when it meets in the Ecuadorean capital Quito, but could hint at the possibility of higher production later.
China is widely expected to raise rates soon. “We would be cautious going into next week, with the very real possibility that the Chinese may move on the rate front,” said Edward Meir, oil analyst at brokers MF Global.
“We do not think that this move is completely discounted yet, and should it occur, it will likely cause further weakness in Chinese equity markets, which is bound to spill over into commodities.”
A report that inflation in China in November was lower than expectations of 4.7% in a Reuters poll also reassured markets that an interest rate increase by the world’s second-largest oil consuming economy may not be in the offing.
China’s annual inflation in November is likely to have been “a little bit” higher than October’s 4.4%, but will be lower than market expectations, the official Securities Times reported, citing unnamed authoritative sources. The statistics will be published on Saturday.
The Standard & Poor’s 500 Index on Wednesday closed at its highest level since September 2008, while Japan’s Nikkei average on Thursday climbed to a fresh seven-month high.
A bigger-than-expected 3.8-million-barrel drop in US crude stockpiles last week also contributed to the gain in prices.
Total US crude and product stocks fell last week by 5.3 million barrels to 1.110 billion barrels, and are down 3% from 20-year highs in September, the Energy Information Administration (EIA) said on Wednesday.
Total US oil product demand over the past four weeks was up 2.9% from the same period last year, with distillate demand up 5.3% and gasoline demand down just 0.7%.
Still, inventories of refined products rose last week as refineries produced more fuel, according to weekly data from the EIA. Gasoline rose by 3.8 million barrels and distillates by 2.2 million, despite colder-than-normal weather in the Northeast.
The financial world is becoming split between investors who are deeply concerned that a proposal from US President Barack Obama to extend tax cuts will worsen a budget shortfall, and investors who are relieved that US authorities are trying to use fiscal and monetary medicine for the economy.
Oil markets over the past 24 hours have shifted from focusing on the first scenario to paying more attention to the rosier picture painted by the second one.
The oil market’s attention was set to turn to US initial jobless claims later on Thursday, before Chinese trade data for November comes out on Friday.