Oil jumps on hopes of recovery in fuel demand in China

Oct 17 (Reuters) – Oil prices rose on Monday after China rotated liquidity measures to help its epidemic-hit economy, fueling hopes of a better outlook for fuel demand from the world’s largest importer of crude.

Brent crude futures rose 81 cents, or 0.88%, to $92.44 a barrel by 0642 GMT, rebounding from a 6.4% drop last week. US West Texas Intermediate crude was at $86.33 a barrel, up 72 cents, or 0.84%, after falling 7.6% last week.

China’s central bank rolled maturing medium-term policy loans while keeping the interest rate unchanged for the second month on Monday.

Analysts said the full extension is a sign that the central bank will continue to maintain loose monetary policy. Read more

A senior official at the National Energy Administration said Monday that the country has also pledged to significantly increase domestic power supply capacity and step up risk controls in commodities including coal, oil, gas and electricity.

Another government official said at a press conference in Beijing that China will increase its reserve capacity for major commodities. Read more

CMC Markets analyst Tina Teng said oil found support from a combination of factors, including comments from Chinese President Xi Jinping at the party conference that reassured the economy’s accommodative policies, a positive sign for the demand outlook. Read more

China is expected to release trade and economic data this week. Although third-quarter GDP growth may rebound from the previous quarter, President Xi’s tough policy on the novel coronavirus faces the world’s No. 2 economy in what will likely be the worst performing year in nearly half a century. Read more

Looking ahead, oil prices are expected to remain volatile as production cuts by OPEC+ will tighten supplies ahead of an EU ban on Russian oil, while a stronger US dollar and higher interest rates from the US Federal Reserve will limit price gains.

Louis Federal Reserve Bank President James Bullard said on Friday that inflation is becoming “prejudicial” and hard to stop, justifying continued “forward loading” with larger increases of three-quarters of a percentage point. Read more

Member states of the Organization of the Petroleum Exporting Countries and their allies, including Russia, lined up on Sunday to support the sharp production cut agreed this month after the White House escalated a war of words with Saudi Arabia, accusing Riyadh of coercion. Other countries support this move. Read more

OPEC+ pledged on Oct. 5 to cut production by 2 million barrels per day, which would lead to an actual drop of about 1 million barrels per day because some members are already producing below their targets.

Despite this, Saudi Arabia, the largest exporter, will maintain stable exports to key Asian markets in November.

“Tightening of oil and petroleum product inventories along with looming supply risks should keep prices volatile,” ANZ Research analysts said in a note.

Additional reporting by Mohi Narayan in New Delhi and Florence Tan in Singapore; Editing by Jerry Doyle

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