Brent crude up for eighth day near $ 117; economic risks may cap rise

Tuesday, 18 September 2012 00:49 - - {{hitsCtrl.values.hits}}

SINGAPORE (Reuters): Brent crude rose for the eighth consecutive session on Monday to just below $117 a barrel, though prices stayed under a four-month peak hit on Friday on worries that high oil prices could hamper efforts to boost a struggling world economy.

Oil has been boosted by the U.S. Federal Reserve’s aggressive moves last week to stimulate the world’s biggest economy, but Brent crude’s rally of about a third since late June could backfire by undermining demand in a fragile economy.

“The current price certainly doesn’t do any favours for a global economy that is struggling to get back on track. A price rally like we are seeing now is only going to do more damage,” said Victor Shum, managing director of consultancy IHS Purvin & Gertz.

“Fundamentals at the moment are not indicative of these prices, and I don’t see oil being able to sustain this rally.”

Brent crude for November delivery rose 26 cents to $116.92 a barrel by 0434 GMT, but remained off a four-month peak hit in the previous session at $117.95 a barrel. Brent gained 2.1 percent in the week ended September 15.

U.S. crude rose 1 cent to $99.01 a barrel, about 1.5 percent off its session high of $100.42 on Friday.

Investors were also concerned about the impact rising prices would have, not just on Chinese oil demand, but on the world’s second-largest economy. “Obviously rising prices makes it more difficult for consumers like China,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “If we continue to see a further deterioration or a lack of pick-up in the Chinese economy, then you would be expecting Beijing to step up stimulus spending.”

Analysts forecast in a Reuters poll that China would slow further in the third quarter but regain some momentum late in the year as the impact of earlier policy easing kicks in fully.

Still, even if activity rebounds modestly in the fourth quarter, it would drag full-year economic growth to below 8 percent, a level not seen since 1999.

Last week’s Fed decision to tie its third bond-buying program directly to economic conditions was an unprecedented step that marked a major breakthrough in the central bank’s efforts to drive down U.S. unemployment.

“They’ve averted a crisis in Europe in the short term, and in the United States the Fed has made it clear that it is going to carry on with stimulus until the economy is stabilized with a view on improving those unemployment numbers,” Spooner said.

Oil was also boosted by rising anti-U.S. demonstrations over a film protesters consider an insult to the founder of Islam and the continued dispute between the West and Iran’s nuclear program brought the risk of a supply disruption in North Africa and the Middle East into focus.

Protesters have since late last week attacked the U.S. embassies in Yemen, Egypt and Tunisia while the United States sent warships towards Libya, where the U.S. ambassador was killed by demonstrators. Demonstrations have also taken place in Kuwait, Iran, Bangladesh, Morocco and Sudan.

“There is definitely an upward pressure on oil prices down the curve,” Spooner said. “The threat that these tensions could lead to potential supply disruptions has raised the risk premium on oil.”

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event including Valentine ’s Day. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Flower Bouquets, Clothing, Watches, Lingerie, Gift Sets and Jewellery. Also if you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.