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Oil Up to Near $86 on Interest Rate Cut in China

Thu, 06/07/2012 - 6:16am
PABLO GORONDI, Associated Press

The price of oil rose to near $86 a barrel Thursday after the Chinese central bank cut its interest rates to help the slowing economy, raising hopes for higher crude demand. The move further buoyed market sentiment, which had earlier brightened on hopes the Federal Reserve might offer new stimulus to the U.S. economy and Spain might get a European rescue package.

By early afternoon in Europe, benchmark oil for July delivery was up 92 cents to $85.94 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 73 cents to settle at $85.02 in New York on Wednesday.

In London, Brent crude for July delivery was up 80 cents at $101.44 per barrel on the ICE Futures exchange.

China's central bank said it would cut its interest rate on a one-year loan by a quarter percentage point to 6.31 percent, its first cut since November 2008. It aims to increased activity in the world's second-largest economy, which has been slowing in recent months after supporting global growth over the past few years. China is a big energy consumer, so higher growth there supports energy prices.

Crude prices were also rising on speculation that the U.S. may implement stimulus measures to boost a flagging recovery.

U.S. Federal Reserve Chairman Ben Bernanke is scheduled to speak to Congress later Thursday, and investors will be closely watching for any evidence the central bank plans another round of Treasury purchases, known as quantitative easing.

Oil has dropped from $106 early last month to below $82 on Monday amid signs of slowing economic growth and crude demand in Europe, the U.S. and China.

"Given the extent of the sell-off in crude oil, we believe that it could rebound quickly if policymakers take steps to lift the fog of uncertainty," Goldman Sachs said in a report. "We expect that policymakers will be providing more clarity throughout the month of June."

Previous U.S. stimulus programs have sent commodities and stock markets higher. Boosting money supply has also tended to weaken the U.S. dollar, which makes commodities traded in dollars such as oil cheaper for investors with other currencies.

U.S. employment growth has disappointed analysts in recent months, and traders will be eyeing jobless claims for last week, which are scheduled to be announced later Thursday.

"Maintaining the upward momentum will likely require much assistance from jobless claims as well as some quantitative easing hints out of Bernanke," energy trader and consultant Ritterbusch and Associates said in a report.

In Europe, traders were hoping that financial authorities in Brussels were preparing some form of a rescue package for Spain. That would lift uncertainty from the continent's economic outlook, helping energy demand.

In other trading, heating oil was up 1.71 cents at $2.6888 per gallon while gasoline futures added 1.23 cents at $2.7026 per gallon. Natural gas dropped 3 cents at $2.391 per 1,000 cubic feet.

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Alex Kennedy in Singapore and Joe McDonald in Beijing contributed to this report.

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