- June 15th, 2012
Oil Rises With Central Banks’ Pledge to Step In
Oil futures rose towards $98 per barrel on Friday, following gains in the euro and stock markets, after a report that major central banks would step in to stem any possible financial storm after Greek elections this weekend.
Investors are worried that if Greece moves out of the zone, it could trigger a global financial meltdown similar to the one that followed the collapse of Lehman Brothers in 2008, which would slash demand for oil.
But officials from the G20 nations, whose leaders are meeting in Mexico next week, said central banks were ready to take steps to stabilize financial markets—if needed—by providing liquidity.
Brent crude was up 49 cents to $97.66 a barrel. U.S. crude rose 71 cents to $84.62 a barrel.
World shares rose and the euro hovered near a three-week high on Friday.
“Oil is following the improving euro. The market has been very short on fears of an economic collapse,” said Thorbjoern Bak Jensen, an analyst at A/S Global Risk Management. “But now people think the moderates will win in Greece and are comforted that the central banks will step in.”
A Greek exit from the euro zone could become increasingly likely should the anti-bailout leftist SYRIZA party sweep the elections after performing surprisingly well in the first round.
The head of Greece’s leftist SYRIZA party promised on Thursday to rip up the conditions attached to the international bailout agreement but keep Greece in the euro zone after an election on Sunday that could decide the fate of the single currency.
A series of increasingly explicit warnings from European leaders that a new Greek government will have to accept all the conditions of the 130 billion euro bailout deal signed in March or see funds cut off has failed to deter SYRIZA.
However, the last opinion polls published before a pre-election blackout showed SYRIZA running slightly behind New Democracy, which is likely accept the bailout terms, and on talk of secret opinion polls that showed pro-bailout parties holding a lead.
Fundamentals remained bearish after the Organization of the Petroleum Exporting Countries decided to retain its output limit at 30 million barrels a day without imposing individual country quotas.
As a result, actual OPEC production is expected to remain at the higher level of 31.6 million bpd after Saudi Arabia ignored calls from OPEC price hawks, including Algeria, Iraq and Iran, to cut back to the limit in order to defend a $100-a-barrel price.
Raising output was a deliberate move by Riyadh to counter the possibility that Iranian oil shipments will fall heavily when a European Union embargo on Tehran starts next month. Iranian production is already down to a 20-year low.
Oil prices have dropped from a $128 peak for Brent in March and from $110 for U.S. crude, in part because the economic outlook has darkened but also because of increased Saudi output, which in April set a 30-year high of 10.1 million bpd.
“I doubt that the Saudis will cut to please the price hawks. The unchanged OPEC output is reflected in the narrowing WTI/Brent spread,” said Carsten Fritsch, an oil analyst at Commerzbank.
“The European market is oversupplied while WTI is affected by this week’s U.S. inventory news, showing a good possibility for a ramp-up in refining, and the effects of the Seaway pipeline will start to become more visible.”
The spread between WTI and Brent has narrowed by just over $2 to around minus $12.75 since the start of the week.
Further gains were also capped as data showed new claims for U.S. state jobless benefits rose for the fifth time in six weeks, indicating the economy of the world’s top oil consumer remains fragile.