Oil prices rebound on China's decision to boost stockpiles

Crude prices have made up the ground they lost earlier this week, bouncing back on news of Chinese government plans to boost stockpiles of economically strategic materials. Addressing the National People's Congress in Beijing on Wednesday, Wen Jiabao, the Chinese premier, said China would "significantly increase" investments this year in commodities such as crude oil and petroleum products to counter the country's economic slowdown.

Analysts said Beijing's oil purchases would help mop up excess crude that had been stored at sea in tankers while major onshore storage depots worldwide have been filled nearly to capacity. "This has buoyed the market a lot," said Dalton Garis, an assistant professor of economics at the Petroleum Institute in Abu Dhabi. "We could see oil at US$50 a barrel fairly soon." Crude pulled back towards $44 a barrel yesterday, after touching $45.70 on Wednesday on the New York Mercantile Exchange, its highest level in more than a month. But fresh data confirming economic contraction in the EU, along with expectations that the US government would report higher unemployment in the world's biggest economy, failed to claw back prices to the $40 level plumbed on Monday.

In another noteworthy development, the discount for the North American benchmark crude relative to European and Omani crudes shrunk to less than $1 a barrel, well below the roughly $10 a barrel spreads reached when brimming stockpiles at the main US storage depot at Cushing, Oklahoma, became a major concern to oil traders. The Oman crude oil futures contract on the Dubai Mercantile Exchange closed yesterday at $44.49.

US crude inventories declined for a second week, according to government figures released on Wednesday, falling by 700,000 barrels to 350.6 million barrels for the week ending Feb 27 instead of increasing as analysts had predicted. Another factor that could bolster oil prices is a growing expectation that OPEC will decide on a further production cut at its March 15 meeting. In a development that some interpreted as a strong signal of Saudi intent to support the market by pumping less oil, the state-owned Saudi Aramco on Wednesday raised its official selling prices for crude to be shipped under term contracts in April.

Saudi Arabia, OPEC's biggest oil producer, has an overarching influence on the organisation's decisions. However, the OPEC president, Jose Maria Botelho de Vasconcelos, said the group would "evaluate the situation" before deciding whether to cut again. @Email:tcarlisle@thenational.ae