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Jul 28, 2012, 08.15 AM IST | Source: Reuters

Oil rises towards USD 106 on US stimulus hopes

Brent crude oil rose towards USD 106 per barrel on Friday, buoyed by hopes for fresh economic stimulus in the United States after confirmation of a slowdown in US economic growth.

Oil rises towards USD 106 on US stimulus hopes

Brent crude oil rose towards USD 106 per barrel on Friday, buoyed by hopes for fresh economic stimulus in the United States after confirmation of a slowdown in US economic growth.

A European Central Bank pledge to protect the euro zone also supported financial markets, helping steady the euro.

US economic growth slowed as expected in the second quarter, with an annualised gain of 1.5%, potentially pushing the Federal Reserve closer to pumping more money into the economy.

Flagging US growth has encouraged economists to predict that the Federal Reserve will buy its own debt to inject funds into the financial system.

Such a move would also probably depress the dollar, which tends to move inversely to commodities such as oil.

"Financial markets see a benign mix of gently rising risk appetite as worries over an imminent euro zone disaster ease and prospects for another US stimulus increase," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.

Brent crude futures for September were up 30 cents at USD 105.56 per barrel by 1340 GMT after rising to a high of USD 106.41. US light crude futures were flat at USD 89.39.

Despite the rises, both Brent and US crude remained on course for their biggest weekly drop in a month.

EASING

The gain in oil on Friday reflected generally stronger financial markets, with rises in stock markets in Europe and Asia.

US second-quarter economic growth was the weakest pace of growth since the third quarter of 2011, Commerce Department estimates showed on Friday.

"This is the sign policymakers must act to provide more support to the economy if they want it to grow fast enough to start putting sustained downward pressure on today's still too-high unemployment rate," said Josh Bivens, research and policy director at the Economic Policy Institute.

John Kilduff, partner at Again Capital LLC in New York said the GDP data was marginally better than the low expectations before it but he still expected the Federal Reserve to embark on additional easing 'sooner rather than later':

"The prospect for easing will be supportive for crude oil, other commodities and equities."

Investors are still keeping a wary eye on the euro zone.

European Central Bank President Mario Draghi said on Thursday the ECB would do whatever it took to protect the euro from collapse, a remark analysts said could also signal a resumption of a sovereign bond-buying scheme.

Many of the fundamental problems faced by the weaker euro zone economies have yet to be addressed and some key pledges for reform have not been met.

Olivier Jakob, analyst at energy market consultancy Petromatrix in Zug, Switzerland said Draghi's comments were vague enough to interpreted in several ways, either meaning very little or implying that the ECB would embark on some disguised direct buying of bonds from southern Europe.

"The problem today, as before, is that European words need to be backed up by European action and while we have a long list for the former we still lack a lot for the latter."

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