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Crude futures settle higher on China rate cut, OPEC scrutiny

http://www.chemnet.com   Nov 24,2014 Platts
The ICE January Brent futures contract settled $1.03 higher at $80.36/b Friday after a surprise interest rate cut by the Chinese central bank lifted hopes the world's second largest economy could grow faster.

Crude benchmarks on both sides of the Atlantic closed at their highest levels since November 12. NYMEX January crude futures ended the session 66 cents higher at $76.51/b.

NYMEX refined products also rallied. December ULSD futures settled 2.45 cents higher at $2.4045/gal, while front-month NYMEX RBOB futures closed 2.89 cents higher at $2.0565/gal.

The People's Bank of China unexpectedly cut benchmark interest rates for the first time since the summer of 2012 in an attempt to revive economic growth after a string of disappointing data, AFP reported.

HSBC said Thursday that China's preliminary purchasing managers' index for November came in at 50.0, down slightly from October, and right on the breakeven point between expansion and contraction.

The Chinese interest rate cut may translate into more robust economic growth and presumably more barrels of demand, Citi Futures and OTC Clearing analyst Tim Evans said.

"With the European Central Bank also stepping on the gas pedal, we see at least the possibility that demand forecasts that have generally been falling over the past five months might see an upward revision in next month's updated outlooks," Evans said.

Mario Draghi, ECB president, said Friday that the central bank is prepared to ramp up asset purchases "without any undue delay" to pump liquidity into the financial system and prevent deflation in the eurozone area, AFP reported.

"The key to the success of the move may be determined by the move in currency exchange rates," Price Futures Group analyst Phil Flynn said.

"Already we are seeing a big move in the dollar as well as a drop in the euro. The key is for the moves to be orderly so the purchasing cost for oil in China and Europe doesn't outweigh the benefit of demand created by easy money," he said.

EYES TURN TOWARDS VIENNA MEETING

The central bank developments come against a backdrop of intense scrutiny of the much-anticipated November 27 OPEC meeting and negotiations between Iran and the six world powers to strike a landmark nuclear deal.

Venezuela is leading calls for OPEC to lower its output to shore up prices, with Iran, Libya, Ecuador and Algeria also seeking action to prevent further price declines.

"The closer to the OPEC meeting we get the more we're hearing about potential product cuts," Andy Lipow, president at Lipow Oil Associates, said.

"The market sentiment is changing, from OPEC doing nothing to OPEC considering a production cut, estimated between 500,000 b/d and 1.5 million b/d," he said.

Non-OPEC member Russia is discussing possible measures to cut crude production to support falling oil prices and believes the situation may require "coordinated action" from some major producers, Energy Minister Alexander Novak said Friday.

Novak noted that Russia's budget is heavily dependent on its crude earnings, but that the country's oil technology does not allow it to cut and raise output quickly.

Russia expects to discuss international oil markets with Venezuela and other countries during a visit by officials to Vienna next week, just ahead of the November 27 summit.

Foreign minister Sergei Lavrov met with Saudi Arabia's Foreign Minister Prince Saud al-Faisal in Moscow Friday.

Lavrov told reporters that Russia and Saudi Arabia believe no political or geopolitical factors should influence oil markets, but if it happens, oil producers "have the right to undertake measures to correct non-objective factors" to balance the market.

"The producers as a whole are concerned about lower oil prices and even the Saudis, who have a significant cash cushion, are also concerned," Lipow said.

"What OPEC really wants is a global economic rebound because that would translate into higher demand for oil that both OPEC and shale producers could supply," he said.

The US, Britain, France, Germany, Russia and China are in the midst of a final round of talks with Iran on Tehran's nuclear program ahead of a Monday deadline for a deal.

Iranian oil minister Bijan Zanganeh said earlier this week that Iran would double crude exports within two months of sanctions being lifted.
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