Crude Oil Rises After China Cuts Rates to Boost Slowing Economy

By Grant Smith

Nov. 26 (Bloomberg) -- Crude oil rose after China cut interest rates for the fourth time in 10 weeks to boost the country’s slowing growth.

Chinese fuel demand has fallen “sharply” since September because of the global credit crisis, the country’s biggest oil producer, China National Petroleum Corp., said Nov. 17. Prices earlier fell on forecasts that a U.S. report today will show crude inventories expanded for a ninth week in a row.

“The Chinese authorities have moved quickly and decisively to ensure the downturn in growth doesn’t turn out even bigger than expected,” said Neil Atkinson, an analyst with KBC Market Services in London. “That should prop up oil demand growth.”

Crude oil for January delivery rose as much as $1.72, or 3.4 percent, to $52.49 a barrel on the New York Mercantile Exchange, and traded at $52.45 at 1:56 p.m. London time. The contract extended gains after a sharper than expected drop in U.S. durable goods orders weakened the dollar.

China slashed its key lending rate by the most in 11 years, giving support to a 4 trillion-yuan ($586 billion) spending plan. The one-year lending rate will drop 108 basis points to 5.58 percent, the People’s Bank of China said on its Web site.

“The combined fiscal and now monetary push will help to avoid a hard landing in China, and thus remains supportive of its oil-demand growth,” said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA in London.

An Energy Department report today will probably show U.S. crude-oil supplies rose 1 million barrels last week, according to a Bloomberg News survey. Fuel demand during the four weeks ended Nov. 14 was down 7 percent from a year earlier, the department said last week.

Brent Premium

Brent crude oil traded in London was at a premium against New York-traded oil for the first time since July 30. It was 2 cents more expensive than the U.S. benchmark at 1:50 p.m. in London.

Brent for January settlement rose as much as $2.14, or 4.3 percent, to $52.49 a barrel, and traded at $52.37 at 1:50 p.m. London time on London’s ICE Futures Europe exchange.

Merrill Lynch & Co. cut its 2009 oil price forecast to $50 a barrel from $90 on speculation OPEC is powerless to support the market as fuel demand shrinks amid a global economic slump. The bank lowered its 2010 forecast to $70 a barrel from $100.

The Organization of Petroleum Exporting Countries, which controls more than 40 percent of the world’s crude, is due to meet in Cairo on Nov. 29 after a decision last month to cut production by 1.5 million barrels a day failed to prevent the slump in prices.

“We doubt OPEC can materially alter either market fundamentals or sentiment near-term,” Merrill analyst Alastair Syme in London said in a report today. “In a rapidly falling demand environment we see little that suppliers can do to either reverse sentiment or tighten market fundamentals.”

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net