Oil slips though Chinese policy puts a floor under prices

Oil prices slipped on Tuesday as concern eased about the fallout from Syrian President Bashar al-Assad’s overthrow, but the market found support in China’s vow to ramp up policy stimulus, which could boost the top global crude buyer’s demand.

Brent crude futures were down 32c, or about 0.4%, at $71.82 a barrel. US West Texas Intermediate crude futures were down 37c, 0.5% lower, at $68 at 4.58am GMT. Both benchmarks climbed more than 1% on Monday.

“The tensions in the Middle East seem contained, which led market participants to price for potentially low risks of a wider regional spillover leading to significant oil supply disruption,” said IG market strategist Yeap Jun Rong.

Syria’s rebels were working to form a government, restore order after Assad ouster with the country’s banks and oil sector set to resume work on Tuesday.

While Syria itself is not a major oil producer, it is strategically located and has strong ties with Russia and Iran, and regime change could raise regional instability.

The power transfer followed 13 years of civil war and brought an end to over 50 years of brutal rule by the Assad family.

The market is also focused on the likelihood of a rate cut by the US Federal Reserve next week, which could boost oil demand in the world’s biggest economy.

The Fed is expected to cut rates by 25 basis points (bps) at the conclusion of its meeting on December 17-18, but traders are waiting to see if inflation data this week could derail that outlook.

“Oil markets have been a function of demand more than supply-side narratives this year and as a result, investors are hesitant to take speculative positions in oil ahead of key policy decisions from the Fed,” said Phillip Nova senior market analyst Priyanka Sachdeva.

Declines were capped by positive expectations on China’s economy, after reports that China will adopt an “appropriately loose” monetary policy next year — the first easing of its stance in about 14 years, to spur economic growth in the world's top oil importer.

While market hopes were high for aggressive policy stimulus, oil price gains could be limited until there was more clarity on what effect Beijing’s measures would have on the country’s crude demand outlook, IG’s Yeap said.

In a positive sign, China’s crude oil imports jumped in November from a year earlier in the first annual growth in seven months, data showed on Tuesday, as lower prices of Middle East supplies and stockpiling demand boosted buying.

Reuters