Oil advances in line with equities

The world will store unwanted oil for most of 2016 as declines in US output take time and OPEC is unlikely to cut a deal with other producers to reduce ballooning output, the International Energy Agency said. (AFP Photo)

LONDON: Oil prices rose on Monday (Feb 15), extending recent bumper gains in line with rising global stock markets, and despite poor Chinese and Japanese economic data, traders said.

US benchmark West Texas Intermediate for March delivery climbed 57 cents to US$33.01 per barrel from Friday's closing level. Brent North Sea crude for delivery in April advanced 36 cents to US$33.72 a barrel in midday London trade.

"After surging higher at the end of last week, crude oil prices have started the new week on the front foot," said City Index analyst Fawad Razaqzada. "Oil and other traders have completely shrugged off the weaker Chinese trade and Japanese GDP figures that were published overnight."

European stock markets rallied sharply on Monday, building on Asian gains after Shanghai avoided a sharp selloff on its return from holidays. Tokyo stocks soared more than seven per cent on Monday, as news of a fourth quarter economic contraction fanned hopes for more stimulus measures.

"With Japan's Nikkei closing up more than seven per cent higher and European stocks also coming back strong, the market either expects to see more Bank of Japan monetary stimuli and/or is more hopeful that oil prices have bottomed out," added Razaqzada.

Japan's economy shrank 0.4 per cent in the October-December quarter - an annualised 1.4 per cent - the Cabinet Office said on Monday, dealing another blow to Prime Minister Shinzo Abe's attempts to kickstart growth and ramp up inflation. For the whole of last year growth in the world's number three economy was a measly 0.4 per cent.

Shanghai stocks meanwhile nursed modest losses that were capped by stimulus hopes in the wake of the disappointing trade numbers.

Shanghai ended 0.6 per cent off. However, the losses were limited considering traders were playing catch-up with last week's bloodbath across world markets and after data showed exports tumbled 11.2 per cent year-on-year in dollar terms and imports plunged 18.8 per cent.

In earlier Monday trade, crude oil prices had fallen as Iran prepared to ship its first consignment of the commodity since sanctions were lifted, reigniting worries over a global supply glut.

Both Brent and WTI oil contracts had soared more than 10 per cent on Friday on a report that the OPEC producers' club was open to output cuts that could drag prices up from more than 12-year lows.

The news provided some much-needed relief to the beleaguered asset, which has lost about three-quarters of its value since mid-2014 owing to the supply woes, overproduction, weak demand and a slowing economy.

"After a massive rebound in oil prices of well over 10 per cent, traders are looking to take some of those gains off the table," said Bernard Aw, a market strategist at IG in Singapore.

"The truth of the matter is that the supply glut still looms in the backdrop, especially with news of Iran loading its first cargo to Europe since sanctions ended. Put differently, any rebound, particularly the scale of Friday's rally, is still an opportunity to sell."