Brent climbs above $114 despite soft China demand

Brent climbs above $114 despite soft China demand

Tokyo: Brent crude futures steadied above $114 per barrel on Monday after China’s oil data came in weaker than expected, with expectations of further stimulus measures from the United States supporting prices.

China’s crude oil imports in August fell 12.5% from a year earlier to the lowest daily rate since October 2010, while implied oil demand in China fell to 8.92 million barrels per day (bpd), underlining flagging domestic demand while the global economic outlook darkens.

Still, prices may pick up as demand for middle distillates such as diesel, gasoline and heating oil typically picks up in the last quarter.

“The fact that China’s imports are down is not a good sign," said Kaname Gokon, deputy general manager of research at Okato Shoji. “But the supply/demand does not look as bad as it seems, if you take into account North America, the Middle East and Singapore because September-October is when the season for middle distillate starts."

Besides weak oil numbers, other economic data from China for August underscored the slowdown in the world’s second-biggest oil consumer, as imports fell and export growth slowed.

“Chinese data had been expected to be weak, so to some extent it has been taken into account in oil prices, but having said that it basically caps the upside," said Masaki Suematsu, energy team sales manager at Newedge Japan.

Stimulus Hopes

The weakness was offset to some extent by expectations that a weaker-than-expected jobs number may be the trigger for a third round of monetary easing, or QE3, by the US Federal Reserve.

The keenly awaited US non farm payrolls data showed that jobs rose by only 96,000 last month, below the forecasted rise of 125,000. While the unemployment rate dropped to 8.1% from 8.3% in July, it was largely due to Americans giving up the search for employment.

A Reuters poll of economists after the numbers showed a 60% chance of the Fed launching a fresh round of QE3 at the conclusion of its 12-13 September policy meeting.

“The Fed will not stand idle in the face of subpar growth," Bank of America-Merrill Lynch analysts said in a report after the jobs data. “We expect additional balance sheet expansion before year-end, with a growing probability of an open-ended QE programme tied to healing in the economy."

Possible Reserves Release

Also supporting oil prices is a possibility that strategic petroleum reserves (SPR) may be released by the United States and other major oil consumer governments.

However, Obama administration officials told energy experts last week they worry a release of crude from US emergency reserves would do little to temper global oil prices, partly driven by tighter supplies of refined fuel such as gasoline.

Operators have restored much of Gulf of Mexico oil and gas output following Hurricane Isaac, but nearly 14% of oil production and nearly 10 percent of natural gas output remained shut on Sunday, more than a week later, US regulators said.

A 100,000 barrel per day drop (bpd) in Saudi Arabia crude production from July to 9.7 million bpd in August, also kept sentiment bullish.

Geopolitical risks remain as Germany’s foreign minister urged Iran on Sunday to make “substantial offers" to restart nuclear talks with world powers and told Israel allowing the Islamic Republic to get the bomb was not an option. Reuters

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