Oil Rises From Eight-Week Low as China’s Demand Prompts Buying

Oil rebounded from an eight-week low in New York as forecasts of rising Chinese demand this year spurred bets that crude’s slump was exaggerated.

Futures climbed as much as 0.8 percent after oil’s 14-day relative strength index, a technical indicator used by traders, slipped to the weakest in five months, signaling prices may rally. China’s crude-processing volume may rise 7.5 percent this year, the China Petroleum and Chemical Industry Association said. The Energy Department may say U.S. stockpiles increased in its weekly inventory report today.

“We’re seeing ongoing strong macroeconomic data from the main consuming countries,” said Andy Sommer a senior analyst at EGL AG in Dietikon, Switzerland. “In China, Germany, the U.S., demand has been a bit stronger than anticipated and that’s a bullish sign for oil prices.”

Futures for March delivery rose as much as 71 cents to $86.90 a barrel on the New York Mercantile Exchange and traded at $86.75 at 11:01 a.m. London time. Brent crude for March settlement gained as much as $1.30, or 1.4 percent, to $96.55 a barrel on the ICE Futures Europe exchange in London.

The spread between the two crudes is at $9.53 a barrel, near its widest in almost two years, as accumulating inventories at the U.S. storage hub in Oklahoma depress the Nymex benchmark.

Rising purchases of Brent crude contracts have driven holdings of the European benchmark oil grade to the highest level in five months relative to New York futures as investors bet it’s a better gauge of global demand.

“The spread has widened and it is possible to widen more,” said Ken Hasegawa, a commodity derivative sales manager at broker Newedge in Tokyo. “Technically and fundamentally, WTI is in a weaker phase and it’s possible for it to go down to $85 a barrel. Inventories are high.”

Relative Strength Index

New York futures dropped 7 percent in the six days leading to yesterday’s settlement of $86.19 a barrel, the lowest since Nov. 30. The contract’s 14-day relative strength index, a measure that signals possible changes in price direction, fell to 34.32 yesterday, the lowest since Aug. 24, according to data compiled by Bloomberg. A reading of 30 typically indicates a price is set to recover, while 70 suggests it may retreat.

China’s fuel production may increase 7 percent in 2011, China Petroleum and Chemical Industry Association said in a report given to the media at a conference in Beijing today. The International Energy Agency estimates the nation will contribute about a third of global oil demand growth this year.

Oil slid 1.9 percent yesterday after an American Petroleum Institute report showed crude inventories rose for a third week. Stockpiles gained 2.12 million barrels to 342.8 million in the week ended Jan. 21, the highest in a month, the industry-funded API said. Gasoline stockpiles advanced 1.72 million to 232.6 million barrels, the highest since Feb. 26.

The Energy Department is scheduled to release its inventory report today at 10:30 a.m. in Washington. Crude supplies probably rose 1.2 million barrels, according to the median of 15 responses in a Bloomberg News survey. Gasoline inventories increased 2.3 million barrels, the survey showed.

Source: Bloomberg