Brent up above $ 118 on Europe debt plan, IEA

Saturday, 23 July 2011 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Oil rose above $118 on Friday, as Europe’s latest attempts to resolve the debt crisis and signs of progress on a U.S. deficit reduction deal offset weak economic data from the world’s second-largest oil consumer, China.

The International Energy Agency’s decision not to release more oil from emergency reserves was also supporting prices.

“It’s a combination of better sentiment, a weaker dollar, less risk aversion and some positive news on the economic front,” said Eugen Weinberg, an analyst at Commerzbank in Frankfurt.

The Brent futures contract for September was up 53 cents at $118.04 a barrel by 0809 GMT, off an earlier high of $118.35. U.S. crude was up 29 cents at $99.42 a barrel.

On Thursday an emergency summit of leaders of the euro zone pledged a second bailout of Greece. This comprised an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

“The preliminary solution presented in Brussels yesterday is bringing some calm to the market,” said Weinberg. “Risk appetite is coming back after the decision to help Greece.”

However, data showing that Chinese manufacturing had contracted in July made some analysts cautious. Commodity markets are focused on the economy of China as a major source of future demand growth.

“Chinese oil demand is really slowing down and the PMI was not encouraging at all. Fundamentals appear to be relatively weak,” said Christophe Barret, global analyst at Credit Agricole Corporate & Investment Bank.

China’s apparent oil demand gained only 1 percent from a year earlier to 8.99 million barrels per day (bpd) in June, the slowest growth in more than two years, Reuters calculations from official data showed.

Barret said the oil price rise could reverse once the market refocused on oil fundamentals: “Now the euro zone debt plan is out we will get more assessment on what is happening in the oil market rather than what is happening elsewhere.”

Edward Meir, senior commodity analyst at MF Global in New York, was also cautious, warning that “the firmer tone we are seeing in the wake of the EU bailout proposal may dissipate heading into the next week.”

He argued that the surge in commodity prices over the last few weeks would kick-start inflation readings again, prompting central banks to raise interest rates.

But Commerzbank’s Weinberg thought the market would be supported today partly for technical reasons. “WTI is near the $100 level and Brent is near $120, so we could expect some speculative buying on the prospect of an outbreak,” he said.

Brent is biased to rise to $120.82 a barrel while U.S. crude has an upside target of $101.53 a barrel, said Reuters market analyst Wang Tao.

Oil prices also received support from signs of progress on a U.S. deficit-reduction deal.

With the clock ticking toward an August 2 deadline to raise the U.S. debt ceiling, President Barack Obama and the senior Republican in Congress, House Speaker John Boehner, are working on a budget plan that could include deep spending cuts but might leave tax reform for later.