China's attempt to prop up its faltering economy has unintentionally boosted something else: US oil, which reached $90 a barrel for the first time in ten months on Thursday.The People's Bank of China announced on Friday that it will reduce the country's reserve requirement ratio for banks by 25 basis points for the second time …
China’s attempt to prop up its faltering economy has unintentionally boosted something else: US oil, which reached $90 a barrel for the first time in ten months on Thursday.
The People’s Bank of China announced on Friday that it will reduce the country’s reserve requirement ratio for banks by 25 basis points for the second time this year, bringing the weighted average for the so-called RRR for banks to 7.4%. The measure is aimed to increase lending to the private sector by lowering the amount of cash banks must keep on hand in reserve.
It is rather early to tell how effectively the current stimulus package will help the world’s second largest economy recover from its worst crisis in decades. The release of industrial output and retail sales figures on Friday will give further information on the present status of the Chinese economy. Nonetheless, oil bulls were quick to interpret the impact of any liquidity increase and subsequent activity on Chinese gasoline consumption.
The Chinese stimulus, combined with the mantra that global oil supply was extremely tight — despite Saudi Arabia’s promise that every contracted barrel would be delivered to its customers, despite its alleged daily cut of one million barrels per day — drove crude to 10-month highs for the fourth session in a row.
West Texas Intermediate, or WTI, crude finished at $90.16 a barrel in New York, up $1.64, or 1.9%. Earlier in the day, the US crude benchmark surged to $90.50, its highest level since November.
Brent crude oil finished at $93.70 a barrel in London, up $1.82, or 2%. Earlier, the global crude benchmark increased to $93.89.
Crude prices have been on a tear since June, rising about 30% in three months as bulls followed the Saudi preoccupation with regaining the $100-per-barrel lead lost in July last year. The Saudis and Russians have agreed to cut 1.3 million barrels of supply from the market per day until the end of the year.
Another factor driving Thursday’s oil surge was higher U.S. producer pricing and retail sales in August. In addition, the boost in retail sales was caused by Americans spending more on petrol last month, giving rise to the belief that they will continue to do so regardless of how high petrol prices rise.
On Thursday, the national average pump price for petrol was $3.858 a gallon, up little more than 5 cents from a week ago.
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