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Oil Fights to Move Above $39 a Barrel

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Oil Fights to Move Above $39 a Barrel

Aug 26 2015, 08.17am GMT


Oil futures were given a lift from the Chinese decision to cut interest rates and ease bank lending restrictions which resulted in oil prices rebounding from their lowest levels in six and a half years to settle above $39 per barrel.

The announcement from the People's Bank of China that it was cutting the interest rate by 25 basis points and further easing the lending restrictions on banks, underscored concerns about the slowdown in the rate of growth of the world's second largest economy. While the move resulted in an initial rise on Chinese markets, this petered out later in the day as the Shanghai Composite Index lost ground to close at 2964.97, a loss of over 7% for the day.

West Texas Intermediate crude for October (CLV5, +0.81%) rose by $1.07 or 2.8% to settle at $39.31 per barrel on NYMEX. On the London ICE Futures Exchange, October Brent crude (LCOV5, +0.69%) went up by 52 cents or 1.2% to settle at $43.231 a barrel.

Naeem Aslam, chief market analyst at AvaTrade said in a note on Tuesday that as long as the WTI crude price stays below $40, the U.S. rig count is likely to drop. “This will dent the U.S. shale-oil supply and crude oil could see a bounce on the back of this in the next quarter or so” Aslam added.

Amid growing concerns by traders about global economic growth and energy demand prospects, West Texas Intermediate crude had settled at $38.24 a barrel on Monday, the lowest level for a most active contract since February 2009.

Despite the doom and gloom as a result of the market selloff that started in China, the U.S. economic outlook was brightened with a reading on the August consumer confidence moving up to its highest level since January.

The latest American Petroleum Institute data released on Tuesday showed an unexpected drop of 7.3 million barrels in crude supplies while analysts had forecast an increase of 1.9 million barrels. Traders will however be watching for the official Energy Information Administration report which is due out later today (Wednesday).

There is growing speculation over calls for an emergency OPEC meeting before the next scheduled meeting due on 4 December. Analysts are saying that a cut in production by the OPEC member crude producers would stabilize oil prices.

Commodities economist at Capital Economics, Thomas Pugh, however, said in a note on Tuesday that OPEC is likely to, “remain steadfast in its policy of maintaining high output.”

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