Possibility of stimulus for big economies helps oil prices higher

London — Oil prices rose on Tuesday on optimism US-China trade tension will ease and on hopes major economies will take stimulus measures to ward off a potential economic slowdown that could hit oil demand.

Brent crude was up 25 US cents to $59.99 a barrel by 9.04am GMT while US crude was up 19c at $56.40 a barrel.

The US said it would extend a reprieve that permits China’s Huawei Technologies to buy components from US companies, signalling a slight softening of the trade conflict between the world’s two largest economies.

The extension brought “relief to investors”, Tamas Varga from oil brokerage PVM said.

Fears of a full blown-out trade war between the world’s two largest economies have weighed on sentiment in recent months.

“The US-China trade spat has been at the centre of the oil market demise, which has sent the global economy to the brink of recession and negatively impacted oil demand forecasts,” Stephen Innes, managing partner of VM Markets, said in a note.

A rally in equity markets around the world on growing expectations that global economies will take action against slowing growth also supported crude prices.

China’s new lending reference rate was set slightly lower on Tuesday after the central bank announced interest rate reforms designed to reduce corporate borrowing costs, while Germany’s right-left coalition government said it would be prepared to ditch its balanced budget rule and take on new debt to counter a possible recession.

“China’s announcement of key interest rate reforms over the weekend has driven expectations of an imminent reduction in corporate borrowing costs,” financial services firm Cantor Fitzgerald said in a note.

A drone attack at the weekend launched by Yemen’s Houthi group on the Shaybah oilfield in eastern Saudi Arabia also lent support. The attack caused a “limited” fire at a gas plant but had no effect on oil production, state-run oil company Saudi Aramco said.

Still, prices were weighed down by a report from oil cartel Opec that stoked concerns about oil demand growth.

Traders were also watching for signs of tension in the Middle East after the US called the release of an Iranian tanker at the centre of a confrontation between Iran and Washington unfortunate, warning Greece and Mediterranean ports against helping the vessel. 

Reuters

Source: businesslive.co.za