Brent crude oil rose to a near two month high on Monday on hopes that the global appetite for oil is growing. The optimism is being fueled by promising economic data from both the US and China. The commodity held on to some of that strength on Tuesday morning and traded at $109.99 at 8:20 GMT.
The People’s Bank of China decided to cut its reserve ratio for small banks in order to help spur on economic growth, possibly increasing demand for oil. The Financial Times reported that the bank decreased its “required reserve ratio” by 0.5 percent for any bank that lends primarily to small businesses.
The move is expected to increase lending to the rural economy and small businesses, and will likely help strengthen currently weak domestic demand.
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Brent also found support from expectations of a 1.5 million barrel drop in US crude stockpiles last week. Most analysts are expecting to see US inventories decline as the summer driving season ramps up and demand in the number one oil consuming nation increases. Positive economic data from the nation has also reinforced the nation’s economic stability and provided a positive demand backdrop.
Moving forward investors will have their eyes on the Organization of the Petroleum Exporting Countries, set to meet in Vienna on Wednesday. Most see the group keeping its output quota at 30 million barrels per day if prices remain at current levels.
Ongoing talks between Iran and world powers over Tehran’s nuclear capabilities are also in focus as the group is under a time crunch. The two sides must reach a long term agreement that will ease sanctions on Iranian oil in exchange for cutbacks on the nation’s nuclear program before a July 20th deadline.
With both sides finding agreement difficult, most expect that the current short term deal could be extended for six months to give the group more time to negotiate.
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