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| Industrial News |
| Oil rises on Chinese stimulus |
| 2008-11-20 16:17:57 |
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| NEW YORK -- Oil prices rose Monday afternoon, after a stimulus package announcement by the Chinese government raised speculation about increased demand.
Oil prices rallied some $4.52 a barrel early in the session after China said late Sunday that it was rolling out a $586 billion stimulus package aimed at protecting its economy from the brunt of the global financial slowdown.
Prices later retreated as investors worried the plan may take time to implement.
While the plan is "very constructive long-term," said Brian Hicks, fund co-manager at U.S. Global Investors in Texas, "we won't start to see the effects of that stimulus until late in the first quarter, early second quarter [of 2009]."
U.S. crude for December delivery ended the day up $1.37 to $62.41 a barrel in New York.
The commodities market has already priced in a pretty significant global recession, said Chris Lafakis, associate economist with Moody's Economy.com. "If the recession doesn't turn out as bad, then all commodity prices could rise," he said.
Long-term, there's no question that a stimulus package would shore up the Chinese economy and be positive for oil demand, according to Lakafis. "This is good for global growth, this is good for the Chinese economy," he said.
Role of the Chinese economy:
A surge in Chinese economic growth, coupled with growing oil demand from the fourth-largest economy, led to a rally in oil prices that culminated with a record high of $147.27 a barrel in mid-July.
However, as the global financial crisis deepened in China, speculation that its rapidly expanding economy would continue driving oil demand fizzled.
In the third quarter, China's export-driven economy grew by a modest 9%, marking the slowest pace in five years and a sharp drop from the prior year's 11.9% growth. And exports, which had been growing at an annual rate of more than 20%, may fall to zero in the coming months, according to analysts.
How much, how soon?
While experts agreed that the stimulus package would help shore up the Chinese economy, the real question is by how much and how soon, said Lafakis.
Unlike the U.S. stimulus package, which is focused on tax rebates, China's stimulus plan is aimed at building infrastructure such as roads and bridges, and providing jobs.
"It takes time for these financial stimulus plans to be implemented," said Lafakis, but China's rapid construction projects ahead of the summer 2008 Olympic Games in Beijing demonstrate the country's ability to move rapidly, he added.
While world markets cheered the Chinese stimulus package - the Hong Kong index jumped more than 5%, Japan more than 6%, and markets in Europe also turned higher - U.S. stocks were dragged down by dire corporate news that fueled recession fears.
Over the past several weeks, investors have focused on the equities markets for signals about the state of the world economy and, by default, for future demand indications for fuel.
Russian influence:
Meanwhile Russian Prime Minister Vladimir Putin said late Monday the oil producer should take a more active role in influencing oil prices, according to Russian news service Interfax.
Russia, the world's second largest oil exporter, is facing an annual decline in oil production as fields in western Siberia mature. State oil pipeline company Transneft also said that Russian exports have fallen 25% in November, according to a separate report.
Russia exerts strong influence over several key pipelines in the former Soviet republic of Georgia, which shuttle oil and natural gas between Europe and Asia.
The rapid decline in oil prices since July has caused concern among oil producing nations.
Last month the Organization of Petroleum Exporting Countries, a coalition of producers including Venezuela and Saudi Arabia, pledged to cut production by 1.5 million barrels a day.
Russia is not an OPEC member, but attends the group's meetings as an observer nation. |
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