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Oil Advances in New York on China Rate Cut, Stimulus Speculation

Oil rose in New York after China cut benchmark lending and deposit rates for the first time since 2008, while policy makers in the U.S. and Europe indicated they may take steps to boost their economies.

West Texas Intermediate futures gained as much as 1.8 percent, reversing earlier declines after the People’s Bank of China said on its website that the benchmark one-year deposit rate will drop by 0.25 percentage points from tomorrow. Federal Reserve Vice Chairman Janet Yellen said the U.S. remains vulnerable to setbacks that may warrant additional monetary stimulus. European Central Bank President Mario Draghi said officials are ready to act as the euro area’s outlook worsens.

“The market is hoping for a new money bazooka from the central banks and rescue funds,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark, who predicts oil prices will remain near current levels. “In recent days we’ve seen some decent volume during every upward move, and that indicates some clear buying interest.”

Oil for July delivery rose as much as $1.50 to $86.52 a barrel and was at $86.30 in electronic trading on the New York Mercantile Exchange at 1:02 p.m. London time. The contract yesterday rose 73 cents to $85.02, the highest close since May 31. Prices are 13 percent lower this year.

Brent oil for July settlement was at $101.90 a barrel, up $1.26, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.60, compared with $15.62 yesterday.

Goldman Reiterates Recommendation

Oil in New York, which fell 17 percent in May for the biggest monthly drop in more than three years, may rebound if policy makers take steps to contain the European debt crisis and counter weaker economic growth in the U.S. and China, Goldman Sachs said in e-mailed report today.

Goldman reiterated its call to buy West Texas Intermediate crude futures for September delivery. The recommendation, first made on Feb. 22, has so far generated a “dismal” loss of $22.72 a barrel, it said.

Prices may also gain as sanctions tighten on Iran and a surplus caused by increased output from Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, is eroded, according to the report.

Iran, OPEC’s second-biggest crude producer, faces additional European Union sanctions starting July 1 because of its nuclear program. The embargo will remove about 1 million barrels of oil from the market, the International Energy Agency estimates.

Site Inspections

Iran will “never suspend” its enrichment of uranium and “will not permit our national security to be jeopardized” by International Atomic Energy Agency inspectors working for Western intelligence agencies, Ali Asghar Soltanieh, the nation’s envoy to the IAEA, told reporters in Vienna yesterday.

Soltanieh contradicted IAEA Director General Yukiya Amano’s May 22 announcement that a decision had been made to allow inspectors increased access to nuclear sites. The Persian Gulf nation’s nuclear negotiator Saeed Jalili only pledged his “determination” to reach an accord, Soltanieh said.

Diplomats from China, France, Germany, Russia, the U.K. and the U.S. are scheduled to hold a third round of talks with their Iranian counterparts in Moscow on June 18-19.

Saudi Arabia may rein in oil sales after it achieved a $100-a-barrel target for London-traded Brent by cutting the price of its crude and pumping at the highest rate in at least three decades. The world’s biggest exporter started to scale back shipments this month, according to Vienna-based researcher JBC Energy GmbH, citing tanker fixtures.

U.S. Supplies

U.S. crude stockpiles fell for the first time in 11 weeks. Inventories dropped by 111,000 barrels last week, a report from the Energy Department showed yesterday. They were forecast to decline 500,000 barrels, according to the median of 12 analyst estimates in a Bloomberg News survey.

Supplies at Cushing, Oklahoma, the delivery point for New York-traded futures, increased 926,000 barrels to a record 47.8 million. Domestic oil production rose to 6.25 million barrels a day, the highest level since February 1999.

Gasoline supplies climbed 3.3 million barrels, the Energy Department report showed. They were forecast to gain 950,000 barrels, according to the survey. Distillate stockpiles, a category that includes heating oil and diesel, rose 2.3 million barrels, compared with a projected drop of 250,000 barrels.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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