Oil prices rise as non-US demand buoys market

22 July 2010

Growth in China boosts sentiment as oil prices rise beyond $76 a barrel

Crude oil prices rose on 22 July as traders balanced negative sentiment in the US with demand growth in other areas, particularly China.

The US’ benchmark August West Texas Intermediate (WTI) contact was trading at $76.50 a barrel, up from lows close to $75 a barrel the day before. It was largely unchanged from seven days earlier, when it traded at $76.67 a barrel.

Europe’s August Brent contract also rose, to $75.50 from $75.30 the day before. It had traded at $75.52 a week before.

Meanwhile, the average price for the oil cartel Opec’s 12 member states’ export crude contracts was $73.16 a barrel on 21 July, unchanged from the day before and up from the $72.94 a barrel recorded on 19 July.

Traders are balancing poor sentiment in the US from growing oil inventories and a uncertainty over the country’s economy with higher-than-expected demand growth in both China and the Organisation for Economic Co-operation and Development (OECD) community, according to analysts at Barclays Capital, the investment arm of the UK bank.

Crude oil stocks grew in the US, the world’s largest consumer, during the week ended 16 July, an Energy Information Administration (EIA) report shows. Stocks increased 353,000 barrels to 353.4 million barrels, according to the 21 July report.

Also on 21 July, Ben Bernanke, the chairman of the Federal Reserve, expressed doubts over economic growth and employment prospects in the US, in the coming year in testimony to the US Senate committee on banking.

“In all likelihood, a significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009,” he said. “Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers’ employment and earnings prospects.”

In China, crude oil demand rose to 9 million barrels a day in June, a 10.5 per cent, or 849,000 barrel a day (b/d) increase from the same month in 2009. This was far more than forecasters had expected and if sustained would make China the biggest energy consumer in the world, surpassing the US.

“Chinese oil demand has surprised to the upside this year and we have a strong suspicion that the resultant global demand upgrades have not yet run their full course,” the Barclays analysts say.

OECD demand grew 1.6 million b/d, its fastest since February 2006, data released by the Riyadh-based Joint Oil Data Initiative shows.

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