Oil gains on stimulus hopes as G20 finance chiefs meet
Technicals show oil may slip to $79.
October 22, 2010 8:46 by Reuters
Oil rose on Friday after jobs and business activity data signalled the U.S. economy would require additional stimulus, while G20 finance ministers meet in South Korea as dollar volatility rattles commodities markets.
U.S. crude for December rose 59 cents to $81.15 by 0320 GMT, aided by rising stock markets in Asia, reversing part of Thursday’s drop of more than 2 percent. ICE Brent gained 59 cents to $82.42.
Oil was still headed for a second straight week of losses, responding to a rising dollar, which was on track for its first week of gains in six weeks. A stronger dollar raises the cost of oil imports for buyers excluding top consumer the United States.
Despite intra-day volatility, oil prices have so far this month remained in a relatively tight range slightly wider than $5, between Tuesday’s low of $79.25 after China raised interest rates and a five-month peak of $84.43 on Oct. 7.
“For the last three or four months, we saw a big decline in the U.S. dollar, and now lots of people see that it will be time for a rebound or to see a correction,” said Ken Hasegawa, a commodity derivatives manager at Japan’s Newedge brokerage.
“But if the Fed in November shows big stimulus plans, that will send the dollar even lower. Participants have no confidence about price direction. It’s still a rangebound market.”
Oil’s gains on Friday also came on the back rising equities in Asia, Hasegawa said, supported by the technology sector.
A batch of new U.S. data on Thursday painted a picture of an economy stuck in slow-growth mode, reinforcing views the Federal Reserve will ease monetary policy further next month to try to reinvigorate the recovery.
New claims for jobless benefits dropped last week but remained at levels suggesting little improvement in the distressed labor market. Other reports showed only a modest rise in a gauge of future U.S. economic activity and a small gain in factory activity in the country’s Mid-Atlantic region.
China’s decision to raise interest rates this week was still seen as an indication that the world’s second-largest oil consumer would tighten policy to keep its economy from overheating, with apparent bearish implications for commodities.
But on reflection, the rate increase could be supportive for prices as China seeks to place its economy on track for continued expansion, analysts said. Bank of Japan chief Masaaki Shirakawa on Friday said China’s rate hike was a step to support sustainable growth.
The U.S. dollar held steady in early Asian dealings on Friday after a volatile session in New York but was seen supported, with investors likely to trim short positions on caution ahead of a G20 finance ministers’ meeting in Gyeongju.
An informed source said G20 officials were unlikely to reach an accord rejecting currency devaluations and capping current account balances after U.S. proposals ran into stiff opposition.
(Editing by Clarence Fernandez)