Oil Is Steady After Rising as China Cuts Rates to Boost Growth

Nov. 27 (Bloomberg) -- Crude oil was little changed after rising yesterday when China, the world’s second-biggest energy- consuming country, cut interest rates by the most in 11 years to boost economic growth.

Chinese fuel demand has fallen “sharply” since September because of credit-market turmoil, the country’s biggest oil producer, China National Petroleum Corp., said Nov. 17. Prices also climbed after a government report showed that U.S. fuel use climbed 510,000 barrels to 19.5 million barrels a day last week.

“The Chinese action is definitely giving us a boost,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “I don’t know if this rally will last because we’ve had a number of stimulus packages announced followed by short- term rallies.”

Crude oil for January delivery rose 1 cent to $54.45 a barrel at 10:35 a.m. Sydney time on the New York Mercantile Exchange. Futures have dropped 63 percent since reaching a record $147.27 on July 11. Yesterday, crude futures increased $3.67, or 7.2 percent, to settle at $54.44 a barrel.

Markets in the U.S. will be shut today because of the Thanksgiving holiday.

“There’s no doubt about it, the Chinese rate cut is a positive step,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “A lot of what we are seeing today is due to the holiday. People don’t want to go home short before what will be a four-day weekend for many.”

Shorts are bets that prices will fall.

Interest Rates

China lowered interest rates for the fourth time in 10 weeks, extending efforts to prevent an economic slump less than three weeks after unveiling a 4 trillion yuan ($586 billion) stimulus 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 European Union proposed measures totaling 200 billion euros ($259 billion) and said more may be needed to limit the impact of the global financial crisis.

Paul Volcker, the former Federal Reserve chairman who throttled the economy to crush inflation in the 1980s, will lead a new White House panel aimed at reviving growth, according to Stephanie Cutter, transition team spokeswoman for President- elect Barack Obama.

“It looks like we might have found a bottom here,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. “Obama’s economic picks have been highly regarded, China is cutting rates and today we have a new EU stimulus program.”

Rising Inventories

Crude-oil supplies rose 7.28 million barrels to 320.8 million barrels last week, according to the Energy Department. It was the ninth-straight increase, the longest stretch since April 2005. Stockpiles were forecast to climb 1 million barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.

Crude oil demand may climb as refineries boost processing. Refineries increased operating rates by 1.3 percentage points to 86.2 percent of capacity, the highest since September. A 0.1 percentage-point gain was forecast.

“The market seems to have taken the 7.3 million-barrel build in the DOE report very much in stride,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “The increase in demand was quite impressive. It appears that the gloom is parting a bit on the demand side.”

Gasoline inventories rose 1.84 million barrels, or 0.9 percent, to 200.5 million barrels, the department said. A 500,000 barrel gain was forecast, according to the survey.

OPEC Meeting

Gasoline for December delivery yesterday climbed 8.49 cents, or 7.8 percent, to $1.1798 a gallon in New York, the highest settlement since Nov. 14. It was the biggest one-day gain since Nov. 4.

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.

OPEC nations may cut output for the second time in as many months as recessions in the U.S. and Europe drag oil below $50 a barrel. Last month, they agreed to cut production by 1.5 million barrels a day.

“We are amply supplied with crude but that might change in coming weeks as the OPEC cuts start to bite,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “I think we will see another cut of at least 1 million barrels come out of this weekend’s meeting because they are concerned about the economy.”

Venezuela will support an output cut of “at least” a million barrels a day at the next OPEC meeting, Energy and Oil Minister Rafael Ramirez said. The group will evaluate compliance with the cut agreed to last month, Ramirez told reporters before a trade summit in Caracas.

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.

Brent crude oil for January settlement increased $3.57, or 7.1 percent, to settle at $53.92 a barrel yesterday on London’s ICE Futures Europe exchange.