Oil Rises Higher as China GDP Hits 3-Year Low

Oil prices rose above $101 on Friday after Chinese GDP data came in slightly better than expected, improving sentiment across the board in commodities, but gains were limited as Chinese power demand remained flat.

Brent crude futures were up .6 percent to $102 a barrel, having earlier pushed to an intraday high of $102.58.

U.S. light, sweet crude was up .6 percent at $87.

Analysts and traders said the market was staging a mini relief rally as the Chinese second-quarter GDP data was not as bad as some had feared.

“The headline GDP print of 7.6 percent was far from jaw-dropping stuff,” said Tim Waterer, senior trader at CMC Markets, in a report. “However, it was a case of small mercies for the market, with risk assets able to claw back some ground.”

Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt, noted that the fixed asset investment number was also quite robust. “So it looks like there is less prospect of a hard landing and fewer concerns now about a sharp economic slowdown.”

Despite the relief, China is growing at its slowest pace since 2009 as the economies of two of its biggest markets, the European Union and the United States, stagnate. This has raised investor expectations that the Chinese will do more to stimulate the economy.

Harry Tchilinguirian, an analyst at BNP Paribas, pointed out that Chinese industrial production was still relatively tepid and that there were disappointing figures for electricity output, which is a useful guide to manufacturing sector activity.

“So prices are up, but by less than what they could have been,” he said. “In a sense they are just recovering back to the levels we had last week.”

Olivier Jakob, an oil analyst at Petromatrix, was also cautious. “Given that the GDP number is controlled by the state, we are more worried about the data for power demand in China, which in June is flat versus last year and comes after very weak numbers for April and May.”

China’s implied oil demand for June was down 0.4 percent year-on-year, contracting for the third time in three months as refineries scaled back production. It burned 8.96 million barrels of oil per day (bpd) last month, the lowest since October 2010.

Oil up on Supply Risks

Brent is set to post a third straight week of gains by the end of Friday after suffering in the second quarter its largest three-month loss since the 2008 financial crisis.

Oil rose after some moves to end the euro zone debt crisis last month and as jitters over supply from Iran and the North Sea spurred appetite for riskier assets.

The United States has ramped up pressure on Iran’s ability to export oil, identifying Tehran’s main tanker firm and exposing dozens of its vessels as government-controlled entities.

The measures are part of U.S. and EU sanctions aimed at depriving Iran of oil revenue to pressure it to rein in its nuclear program, which Tehran maintains is solely for peaceful purposes but which the West believes is being used for weapons.

Production upsets in the North Sea and a potential record-low export volume in August also supported Brent.

Britain’s largest oilfield, Buzzard, suffered a glitch, causing its output to fall to as low as 50,000 barrels per day, or a quarter of normal, earlier this week, traders said.

It was unclear if production had returned to normal.

Forecasts of lower fuel demand growth in 2012-2013, due to a global slowdown, capped oil prices.

The International Energy Agency has said the global economic slowdown could put a lid on oil prices, but “nasty supply surprises” could reignite a market rally.

CNBC