Forexpros – Crude oil futures rallied on Friday, rebounding from an eight-day low after a summit of European Union leaders concluded with an agreement to introduce tighter fiscal controls across the single currency bloc and amid speculation China will ease monetary policy to support economic growth.
On the New York Mercantile Exchange, light sweet crude futures for delivery in January traded at USD99.80 a barrel by close of trade on Friday, slumping 1.39% over the week.
Crude prices were boosted after a two-day summit of 27 European leaders ended with an agreement to increase the financial backstops to countries with debt problems by channeling EUR200 billion of funds to the International Monetary Fund. However, they postponed decision on increasing the capacity of the European Stability Mechanism until March.
U.K. Prime Minister David Cameron vetoed changes to the EU treaty after failing to secure concessions, meaning new fiscal rules will have to operate as an intergovernmental agreement.
Meanwhile, prices found further support after official data showed that Chinese consumer price inflation rose 4.2% in November, the smallest gain in 14 months, easing sharply from 5.5% in October.
The data boosted speculation that Beijing will introduce further monetary easing measures in the near-term to help bolster growth in the world’s second largest oil consuming nation.
Also Friday, the University of Michigan said that a preliminary reading of its consumer sentiment index rose to a six-month high of 67.7 in November, up from 64.1 in the previous month and above expectations for a reading of 65.6.
Lingering fears over a potential disruption to oil exports for Iran continued to underline prices. According to an EU summit statement, European governments were considering imposing stiffer sanctions on the Middle Eastern country, amid “serious and deepening concerns” over its nuclear program.
EU foreign ministers will decide on the next set of sanctions on January 30, the statement showed.
Iran is the world’s fourth largest oil producer, pumping nearly 5% of the world’s oil in 2011 and the second biggest exporter among the Organization of the Petroleum Exporting Countries.
Friday’s strong gain was not enough to reverse Thursday’s 2.75% plunge as market sentiment was rattled after European Central Bank President Mario Draghi quashed expectations that the central bank would step up its bond purchasing program once a political solution to the debt crisis was reached.
The ECB cut its benchmark interest rate by 0.25%, bringing rates back to a record low of 1%.
Euro zone developments have dominated trading in the oil market for the last several months, amid worries that the sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for January delivery settled at USD108.80 a barrel by close of trade on Friday. The Brent contract lost 1.52% over the week, with the spread between the Brent and the crude contracts standing at USD9.00 a barrel.
The gap has narrowed sharply after hitting an all-time high of USD27.88 a barrel early in October, as expectations for the return of Libyan crude supplies and the euro zone’s ongoing debt crisis have weighed on the Brent contract.
Market participants are eyeing this week’s OPEC meeting in Vienna, where the group’s members are scheduled to meet Wednesday to review production quotas. The group has not changed output targets since 2008.
Wall Street investment bank Morgan Stanley said in a report Thursday that, “Today’s elevated oil price is likely to discourage OPEC from cutting production quotas, regardless of the rhetoric from Vienna on December 14.”
“Historically, we find price as the key determinant of OPEC production, not quotas or rhetoric,” the report added.
Investors will also be keeping a close eye on the borrowing costs of troubled euro zone states, as a rise in bond yields could prompt a rating cut after Standard & Poor’s warned that it may carry out a mass downgrade of 15 euro zone members, including Germany, France, Italy and Spain.
Meanwhile, the Federal Reserve’s policy setting meeting on Tuesday will also be in focus, as concerns over the impact of the euro zone’s financial crisis on global growth continue to weigh.
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