Oil prices spike after Chinese rate cut

Thursday, 07 June 2012 17:51

Posted by Shoaib-ur-Rehman Siddiqui

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LONDON: Oil prices rebounded on Thursday after a decision by China's central bank to slash its key rate for the first time since 2008 and ahead of remarks by US Federal Reserve chief Ben Bernanke.

In afternoon London deals, Brent North Sea crude for July rose $1.06 cents to $101.70 per barrel.

New York's main contract, West Texas Intermediate crude for delivery in July jumped 1.16 cents to $86.18 a barrel.

"Oil in New York and London has rebounded recently after China announced the PBOC will cut its benchmark interest rates by 0.25 percentage points from Friday," said Tradition Energy analysts Addison Armstrong.

"Energy markets had earlier slipped into negative territory after making small gains yesterday on hopes for greater stimulus from the ECB and the Fed," Armstrong added.

The People's Bank of China said it will cut interest rates for the first time in more than three years, amid growing concerns over a growth slowdown in the world's second largest economy.

The move had widely been expected following dismal economic data in April and weaker manufacturing activity in May.

Later on Thursday, Fed chief Bernanke will make a key speech to Congress, while investors will also digest the latest American unemployment figures.

In the US overnight, Atlanta Federal Reserve President Dennis Lockhart said the Fed might need to consider more monetary easing if economic growth in the world's largest oil consumer hit more road blocks.

Stating that monetary policy was "appropriate" for the moment, Lockhart said in a speech posted on the bank's website that the Fed would likely consider more action if growth stalled.

"Should it become clear that something resembling my baseline scenario of continued, though modest, growth is no longer realistic, further monetary actions to support the recovery will certainly need to be considered," he said.

Crude futures had risen Wednesday on the European Central Bank's signals of support to ailing eurozone banks.

The ECB's keeping interest rates on hold rather than cutting them also helped the euro strengthen, pulling crude prices up with it.