China's Stimulus for Sluggish Economy Pushes Up Oil Prices

Singapore, Aug 28 - A wave of optimism swept through both oil markets and equities on Monday, as China embarked on measures to bolster its economic momentum. While concerns about growth pace and potential U.S. interest rate hikes lingered in the background, the overall sentiment remained positive.

In the early hours, Brent crude experienced a 22-cent upswing, marking a 0.3% climb to reach $84.70 per barrel by 0049 GMT. Similarly, U.S. West Texas Intermediate crude joined the rally, standing at $80.08 a barrel, reflecting a 25-cent gain, or 0.3%.

Tony Sycamore, an astute IG market analyst, noted that oil markets benefited from an improved mood on the trading floor. China's move to halve stamp duty on stock trading starting Monday reverberated positively, representing another step to breathe life into the struggling markets. However, Sycamore pointed out that these developments, while welcome, might not be substantial enough to completely alter investors' sentiment towards China, particularly in the wake of last week's modest rate cut by the Chinese central bank.

Anticipation lingered around China's forthcoming manufacturing purchasing managers' index (PMI) set to be unveiled later in the week. According to Sycamore, this index could provide additional insights into the world's second-largest economy, with expectations leaning toward the PMI remaining in contraction territory for a fifth consecutive month.

Tina Teng, an analyst at CMC markets, contributed to the buoyant atmosphere by presenting a "soft-landing" scenario for the U.S. economy. This perspective managed to uplift energy markets on Monday, despite the Federal Reserve's persistently hawkish stance on rate hikes.

Last week, both Brent and WTI experienced losses for the second consecutive week following comments by Federal Reserve Chair Jerome Powell. Powell hinted that the central bank might consider further rate hikes to rein in inflation. Nevertheless, oil prices managed to maintain a foothold above the $80 threshold per barrel, supported by diminishing oil inventories and supply reductions orchestrated by the OPEC+ alliance.

Stateside, there was news that energy companies reduced the number of active oil rigs for the ninth consecutive month in August, as reported by Baker Hughes.

Additionally, the emergence of Tropical Storm Idalia in the Caribbean, with the potential to intensify into a hurricane and impact Florida, garnered attention. IG's Sycamore mentioned that while the hurricane was expected to bypass oil and gas hubs in the Gulf, its likely effect could involve a day or two of power outages. This, he emphasized, might lead to a short-term uptick in oil prices.

The overall mood in the oil market appeared to be one of cautious optimism, as global developments played out against the backdrop of dynamic economic forces and meteorological phenomena.

Source : Reuters (Reporting by Florence Tan)