Oil Advances After China Announces Sweeping Support Measures
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(Bloomberg) -- Oil climbed after Chinese authorities unveiled a package of measures to boost its economy, and major Israeli strikes on Hezbollah targets in Lebanon kept tensions high in the Middle East.
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West Texas Intermediate jumped almost 2% to settle above $71 a barrel, while Brent crude rose to settle around $75 a barrel. Prices were also supported by signs that algorithm-driven traders were unwinding bearish positions.
People’s Bank of China Governor Pan Gongsheng announced a series of stimulus measures at a briefing on Tuesday in Beijing, marking policymakers’ most forceful attempt to hit this year’s annual growth target.
Concerns about China’s flagging economy and the prospect of increased supplies from OPEC+ have sent oil prices down by around 12% this quarter. The measures announced Tuesday — which include boosting banks’ lending and a cut to a key short-term interest rate — could support growth and energy demand in the world’s biggest oil importer.
“The Chinese government’s announcement of its largest stimulus package since the pandemic, combined with the sudden rise of geopolitical tension in the Middle East, and the threat of another hurricane in the Gulf Coast, has dealt a blow to the bearish sentiment that dominated the oil markets in the past three weeks,” Claudio Galimberti, global market analysis director at Rystad Energy, said in a note.
In the Middle East, Israel carried out more air strikes on Hezbollah targets killing over 500 people in one of the deadliest days of strikes in Lebanon since 2006, when the two sides fought a devastating war. Iran, which backs the group, had said earlier that it was prepared to de-escalate tensions.
Derivatives markets are also flashing bullish signs. Options markets have been charging smaller premiums for bearish put options since the most recent escalation began. Trend-following commodity trading advisers are estimated to be about 55% net short in WTI currently, compared with about 82% net short a week ago, according to data from Bridgeton Research Group. While the funds have been covering short positions, they were also buying earlier in the session on Tuesday, Bridgeton estimated.
Meanwhile, hurricane watches have been issued along Florida’s western coastline as well as Mexico and Cuba as Tropical Storm Helene churns toward the Gulf of Mexico. Helene is forecast to intensify into a hurricane on Wednesday and slam into the Florida Panhandle on Thursday evening.