Oil rebounds to $78
Oil prices rose above $78 on Tuesday on expectations that Chinese economic indicators to be published this week will signal strong demand growth from the world’s second-largest oil consumer.
China’s industrial output probably jumped by 20 percent in the year to December from November’s figure of 19.2 percent, a Reuters survey showed. That would be the fastest pace since February 2006.
Front-month U.S. crude futures settled on Friday below the 50-day moving average for the first time in three weeks and bounced back, setting an important support level at $78, said Mark Pervan, senior commodities analysts at ANZ.
U.S. crude futures for February delivery climbed as much as 68 cents from Friday’s close of $78 and were trading up 25 cents at $78.25 by 0318 GMT. They touched a three-week intraday low of $77.07 on Monday.
Oil prices are still nearly 46 percent off their July 2008 high of more than $147 a barrel.
NYMEX will combine prices for Monday and Tuesday into a single trading session because of the Martin Luther King Day holiday.
“There is growing expectation that the Chinese data will surprise on the upside,” said Pervan from Melbourne, Australia. “This means a reasonably strong commodities markets and oil is taking a lead from that.”
A weaker dollar encouraged riskier trades in commodities. “That is also positive for the oil market,” Pervan added.
The NYMEX February contract expires on Wednesday. March futures, the front-month contract as of Thursday, rose 23 cents to $78.60 a barrel.
The dollar was lower at 90.65 yen, hovering near a four-week low of 90.55. London Brent crude futures for March delivery increased 2 cents to 77.12, after trading little changed on Monday.
A higher-than-expected figure for China’s industrial output could be interpreted as a reason for China’s central bank to tighten monetary policy, especially after it announced higher reserve requirements last week.
But the bearish effect of tightening measures on energy consumption will be more than compensated by sustained strong economic growth, Pervan said.
The Chinese economic data, including inflation, producer prices and retails sales, will be published on Thursday.
China’s crude oil imports will probably rise 15 percent this year from 2009 as the country launches the second phase of its state petroleum reserve, according to China Oil, Gas & Petrochemicals, a report published by the state-run Xinhua news agency.
“The next flag for oil prices may be Chinese growth going stronger that we are thinking,” Pervan said.
A moving average is a graph indicator that traders use to determine potential turning points for prices. It represents the average settlement price for whatever number of days is chosen before the current date. The 50-day moving average for the front month U.S. crude futures contract currently stands at $78.04.
The International Energy Agency (IEA) says OPEC will probably decide to hold production steady at its next meeting in March. The oil market is “pretty well supplied,” said IEA Deputy Executive Director Richard Jones.