Assistant Pipeline Superintendant Gerald Johnson at the Husky Energy oil terminal facility in Hardisty, Alta., June 20, 2007. THE CANADIAN PRESS/Larry MacDougal
June 11, 2012 - 9:17 AM
The price of oil rose to near US$85 a barrel Monday after Europe offered Spain a $125-billion rescue loan for its troubled banks and China significantly increased its imports of crude.
By early afternoon in Europe, benchmark West Texas Intermediate crude for July delivery was up 77 cents at US$84.87 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, the contract rose as high as US$86.64. On Friday, it fell 72 cents to settle at $84.10.
In London, Brent crude for July delivery was up 93 cents at US$100.40 a barrel on the ICE Futures exchange.
Over the weekend, the 17 countries that use the euro common currency pledged to lend Spain funds to bailout out its faltering banks. Oil has dropped from $106 last month on concern over global growth and as Spain's banking crisis threatened to worsen Europe's economic slowdown.
The financial lifeline for Spain helped strengthen the euro to $1.2610 from $1.2507 late Friday in New York. A weaker dollar makes commodities priced in dollars less expensive for investors with other currencies.
"Over the last three months we have seen a significant re-emergence of the link between the euro and oil prices," energy trader and consultant The Schork Group said in a report. "Thus, strength in the euro likely means support for oil prices."
Meanwhile, official data showed China imported nearly six million barrels of crude oil a day in May, some 10 per cent more than the month before and 18 per cent more than a year earlier. That helped ease concerns about falling growth and demand in the world's second-largest economy.
"China has clearly taken advantage of the sharp fall in prices in May to replenish its commodity stocks," said analysts at Commerzbank in Frankfurt. "The poorer economic data from China of late had led to expectations of lower import dynamics. China is thus having a stabilizing effect on prices on the oil market."
A warning from Iran that negotiations over its nuclear program could stall also helped raise oil prices. Ali Bagheri, Iran's No. 2 nuclear negotiator, said western powers must explain what concessions they will offer to Iran in return for limiting its uranium enriched program, according to official IRNA news agency Sunday.
Iran and six world powers are scheduled for talks in Moscow on June 18.
Iran says it is developing a nuclear program for peaceful purposes. In exchange for discussing enrichment, Iran wants the West to ease sanctions which have made exporting its crude more difficult.
Goldman Sachs predicted that decreasing spare supply capacity and the Iran crisis would drive up the Nymex contract to US$115 a barrel three months from now and to $125 a barrel by mid-2013.
"Despite the notable slowdown in global economic growth, we continue to expect that oil demand will grow well in excess of production capacity growth," Goldman Sachs said in its Global Commodity Watch report released Monday.
"In our view, it is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply."
"Further, as tensions between Iran and the West escalate, the risk to crude oil prices is becoming increasingly skewed to the upside."
In other energy trading, heating oil was up 2.21 cents at US$2.6942 a U.S. gallon (3.79 litres), while gasoline futures rose 1.83 cents to US$2.7035 a gallon. Natural gas slid three cents to $2.269 per 1,000 cubic feet.
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News from © The Associated Press, 2012