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Technoclinic > NEWS > Oil Jumps As Yuan Hits 2016 High; Investors Put Fresh Cash Into Oil
NEWS

Oil Jumps As Yuan Hits 2016 High; Investors Put Fresh Cash Into Oil

srijita
Last updated: 2016/03/11 at 6:21 PM
srijita
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Oil Jumps As Yuan Hits 2016 High; Investors Put Fresh Cash Into Oil
Singapore: Oil prices jumped on Friday supported by fresh investment and a weaker dollar, which makes fuel cheaper for importers using other currencies, but analysts warned that a stronger price rally was premature as a global glut remained in place.

U.S. crude futures were trading at $38.64 a barrel at 0749 GMT, up 80 cents and over 2 percent from their last close.

Traders said reports that commodity merchant Gunvor was the latest company to export U.S. sweet crude also supported WTI prices.

Brent crude futures were at $40.70 a barrel, up 65 cents.

May WTI’s discount to May Brent has narrowed to 51 cents a barrel on Friday from $1.23 a barrel on Tuesday.

Traders said that much of the oil price support came from the Chinese yuan hitting its highest level in 2016 on Friday, reflecting a global weakening of the dollar against other major currencies. The greenback already fell sharply on Thursday following easing measures announced by the European Central Bank.

“It’s all happening against the background of a very big move in the euro last night… (with the) big jump in the euro/dollar last night requiring a compensating move in the yuan,” said Ric Spooner, chief market analyst at CMC Markets.

China’s demand exerts a strong influence on the oil markets as its government is taking advantage of low prices to build strategic reserves and gasoline consumption is soaring because of rising car sales in the world’s second-biggest oil user.

A weaker dollar is supportive for oil prices as it makes dollar-traded oil cheaper for countries like China, potentially spurring fuel demand.

Traders said prices also received support from fund money flowing into oil markets.

“The funds have turned bullish and the market seems determined to stay at or around $40,” said Pete Donovan, broker at Liquidity Energy in New York.

Yet analysts warned that the price rally could be short-lived as a glut remained in place, especially as a meeting between major producers to coordinate a freeze in output looked unlikely to even take place since Iran would not commit to attending.

A global glut in supply means that over 1 million bpd of crude is being produced in excess of demand and that has left storage tanks around the world brimming with unsold oil. Analysts say that a fundamental reduction in supplies, for instance through a production cuts, must happen before prices can move higher.

HSBC economist Fred Neumann said “the problem… lies with all the extra supply (e.g. Iran) that has poured onto markets. That means that even a (demand) pick-up in China, in any event likely to be marginal, may not be enough to sustain the latest rally.”

[“source-ndtv”]
TAGGED: 2016, as, Cash, Fresh, High, Hits, Into, Investors, Jumps, Oil, Put, Yuan

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srijita March 11, 2016
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