Oil Recovers after Interest-Rate Cut from China Central Bank

Published By : 25 Aug 2015 | Published By : QYRESEARCH

Oil prices on Tuesday made a recovery after gains from short covering and bargain hunting brought on by a cut in interest rate by the central bank in China.

Sweet, light crude oil meant for delivery in October settled up by 2.8 per cent or US$ 1.07 to reach US$ 39.31 per barrel on the New York Mercantile Exchange. The global benchmark Brent gained 1.2 per cent or 52 cents to settle at US$ 43.21 per barrel on ICE Futures Europe. Both had dropped to new six year lows on Monday after a broad market selloff triggered by China piled on to a string of huge losses resulting from an unremitting supply flood. 

The People’s Bank of China said on Tuesday that it had slashed interest rates by one quarter of a percentage point. This has supported broader rebounds of the market, especially in European and US equities, according to Matt Smith, director at Clipper Data, a commodity research firm. A deceleration of the Chinese economy has been particularly significant for oil markets given that the country is the second largest consumer of oil in the world, after the United States. 

Amrita Sen, a market analyst at Energy Aspects, said that whatever the Chinese government does, under the category of credible, will support the market. However, the bigger picture is still that the supply is still a problem while the demand continues to be robust. Prices need to be down for a longer period of time to ensure that the supply side begins reacting.

Oil traders dismissed a decline of 7.6 per cent in Chinese equities, rather seizing the opportunity from the latest spate of losses in order to cover the winning bets on declining prices. Daniel Ang, analyst at Singapore based Philip Futures said that investors should view these gains resulting from Tuesday’s recovery as only temporary.
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