LONDON, (Reuters) – Oil prices remained above $82 a barrel on Friday, recovering from a brief dip after China increased banks’ reserve requirements by 50 basis points for the second time in two weeks.
By 1118 GMT, U.S. crude oil futures CLc1 were up 45 cents at $82.30 a barrel. Prices briefly touched intra-day lows of $81.54 a barrel after the news and were down from earlier highs of $82.75 a barrel.
This marks the second time in two weeks that China has increased banks’ reserve requirements, and the move is widely expected to be a precursor to an interest rate increase.
“I would think the impact is limited as it’s not an interest rate increase but just a hike of minimum reserve requirement; so this is not an increase in borrowing costs but a withdrawal of excess liquidity,” Commerzbank analyst Carsten Fritsch said.
“Only when they in fact do hike interest rates, this will have a more negative impact on oil.”
Expectations of a rate increase rose after a report in a Chinese newspaper suggested that Friday could be a convenient time to raise rates before banks settle accumulated interest on the 20th day of the month, Bache Commodities analyst Christopher Bellew said an interest rate increase would be positive for commodities in the long term.
“Personally I think anything that acts a gentle brake on the runway growth in China will be a very good thing in the longer term,” he said. “And if it causes commodity prices to fall, it will only be in the short term. In the longer term, China will be the reason for the next rally.”
IRELAND DEBT WOES EASE
North Sea benchmark ICE Brent crude futures LCOc1 traded 55 cents firmer at $85.60 a barrel by 1120 GMT, having earlier risen $1.10 to $86.15 a barrel on hopes debt-ridden Ireland will obtain a bailout loan from the European Union and the IMF to shore up its banks.
“The announcement of some type of financial assistance for Ireland seems imminent,” Gain Capital Forex.com senior strategist Daniel Hwang said in a note. “A resolution before end of week is likely to see risk sentiment improve and help keep oil prices supported above the $80 per barrel level.”
Analysts said that further expected clarity about Ireland’s debt woes has spurred risk appetite among investors, which has supported oil prices. The euro edged up versus the dollar.
“There is a return of risk trades in the market, and oil is benefitting,” Commerzbank’s Fritsch said. “Worries about the (euro zone) debt crisis seem to be easing somewhat today.”
VTB Capital oil analyst Andrey Krychenkov said that while risk aversion has receded, investors remain concerned about Spain and Portugal.
“Yesterday risk aversion receded, but in reality it doesn’t make things better. People are starting to get concerned about Spain and Portugal,” he said. “Really, it’s still trading on the back of a slight euro rebound.”
U.S. Federal Reserve Chairman Ben Bernanke countered criticism of the Fed’s quantitative easing programme in remarks prepared for the European Central Bank conference.
The ECB’s president, Jean-Claude Trichet, will deliver a keynote address at 1415 GMT.
No major economic indicators are due on Friday.