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China growth lights up oil

US fiscal deficit remains single biggest worry

Gulf News

New York: Brent crude rose toward $112 per barrel on Monday on signs of reviving economic growth in China, the world’s second-biggest oil consumer, and supply concerns triggered by tension in the Middle East.

Activity in China’s manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence of a pickup after seven quarters of slowing growth.

China’s data “has been broadly supportive of risk markets and entirely consistent with recent numbers suggesting overall improvement in growth,” said Ric Spooner, chief market analyst, CMC Markets in Sydney.

“The market will continue to build a significant risk premium on the probability of disruptions to oil supplies from the Middle East,” he added.

Front month Brent futures were trading up 34 cents at 111.61 per barrel by 0451 GMT, after rising 2.3 percent in November. The contract rose to a high of $111.70 per barrel immediately after the China data release.

US crude added 22 cents to $89.13 per barrel. The contract has broken through a key resistance at $88.75 and could rise to $89.80, according to Wang Tao, Reuters market analyst for commodities and energy technicals.


China revival


The HSBC Purchasing Managers Survey (PMI), which focuses on private export-oriented manufacturers, rose to 50.5 in November, inching above the 50-mark that separates growth from contraction for the first time in 13 months.

The findings were in line with a preliminary survey released last month and a similar survey by the National Bureau of Statistics. The official PMI rose to a seven-month high of 50.6 for November from 50.2 in October.

“This confirms that the Chinese economy continues to recover gradually. We expect GDP growth to rebound modestly to around 8 per cent in the fourth quarter as the easing measures continue to filter through,” said Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC.

Investors will now be awaiting China’s industrial output and trade data later this month for further confirmation of revival in the world’s biggest energy consumer.

Also offering support to the oil markets are tensions in the Middle East, such as hostilities between Israel and Palestine, fresh political unrest in Egypt and the conflict in Syria.

Stung by the UN General Assembly’s upgrading of the Palestinians’ status from “observer entity” to “non-member state”, Israel said on Friday it would build 3,000 more settler homes in the West Bank and East Jerusalem, areas Palestinians want for a future state, along with Gaza.

Egypt’s President Mohammad Mursi called a December 15 referendum on a new constitution, hoping to end protests over a decree expanding his powers that plunged the country into its worst crisis since he came to power.

Syrian forces pounded rebel-held suburbs around Damascus with fighter jets and rockets on Sunday, opposition activists said, killing and wounding dozens in an offensive to push rebels away from the airport and stop them closing in on the capital.

Adding to jitters, the US Senate approved on Friday expanded sanctions on global trade with Iran’s energy and shipping sectors, its latest effort to ratchet up economic pressure on Tehran over its disputed nuclear programme. 

US fiscal worries 

But worries about the United States’ fiscal deficit and talks on the upcoming fiscal cliff, a $600 billion package of tax hikes and spending cuts which may plunge the world’s biggest economy into deep recession, kept oil price gains in check.

“The US fiscal cliff remains the single key factor influencing demand outlook,” and markets are veering round to the view that US economic growth will be slower, Spooner said.

The package takes effect at the end of the year and President Barack Obama’s administration and congressional leaders are trying to work toward a deficit reduction in the next session of Congress that begins in January.

Investors also await economic data from the United States, specifically on employment, to assess the health of the nation’s labour market.

“The Employment Report could be mixed because there is an elevated potential negative impact from Hurricane Sandy, but a continued positive impact from expanding housing and construction markets,” Jason Schenker, president of Prestige Economics, said in a report.

“In addition to economic data, policy concerns and the debate over the impending onset of the US fiscal cliff, as well as Eurozone concerns, are poised to move markets this week,” he added.