SINGAPORE: Brent futures rose for a fourth day in Asia on Tuesday,
reaching more than $116 per barrel on persistent hopes for stimulus
measures from central banks in the United States and Europe, with key
policy meetings this week and next.
Prices were also underpinned by expectations that weak data from
China, the world's second-biggest oil consumer, would prompt Beijing to
ease policy further, while festering tension between Iran and Israel
added support.
The European Commercial Bank meets on Thursday and U.S. Federal
Reserve policymakers will begin a two-day gathering on September 12.
"A lot of today's move is on expectations of stimulus, with the ECB
and Fed meetings coming up," said Tony Nunan, an oil risk manager at
Mitsubishi Corp in Tokyo. "That, and the steady drumbeat of news from
Iran and the tensions with Israel, is keeping the heat under the
market."
Front-month Brent futures had risen 23 cents to $116.01 per barrel by
0421 GMT. The contract had earlier climbed as high as $116.36, a few
cents short of a three-week high.
U.S. crude futures added 72 cents to $97.19, although U.S. markets
were closed on Monday for the Labor Day holiday. They could revisit the
August 23 high of $98.29 as they have broken above resistance at $96.54.
CHINA WEAKNESS
China's vast manufacturing sector contracted in August, strengthening
the view that the slowdown in the economy may extend into the third
quarter.
Inflation and industrial data are due on Sunday, while trade numbers
will be released on Monday, which may give a clearer picture of the
state of the Chinese economy.
Complicating matters, the country's political leadership is set to
change hands in a once-in-a-decade transition later this year.
"The steady bad numbers from China indicate beyond a doubt that
growth is slowing, and with the change of guard coming up there will be
pressure on the authorities to stimulate the economy," said Nunan.
In the short-term, however, investors are awaiting the outcome of the
ECB meeting on Thursday. The bank is expected to give some details on a
bond-buying scheme to help its crisis-ridden members.
Strengthening those expectations, ECB Chairman Mario Draghi told
European lawmakers that the bank's purchases of short-term debt would
not breach European Union rules, according to a recording obtained by
Reuters.
"Investors are beginning to piece together a scenario under which ECB
bond purchases will be limited to shorter maturities," said Ric
Spooner, chief market analyst at CMC Markets in Sydney. "Any such
arrangement could remove short-term funding problems as a source of
immediate concern for markets."
There are also hopes that the Fed, which meets next week, will
provide further hints on whether it is leaning toward a third round of
quantitative easing, or QE3, as the minutes of its last meeting
suggested.
Traders however are not betting on a QE3 announcement on September
13. A poll of 61 economists last week gave a 45 percent chance of an
announcement of QE3 after the September meeting.
IRAN, ISRAEL
Investors are also monitoring developments in the Middle East, with a focus on rising tensions between Iran and Israel.
Iran has built about 30 percent of a missile defense system it is
developing in place of the Russian S-300 system Moscow refused to sell
to the country, and hopes to complete the system by next year, a senior
military official said on Monday.
Under mounting pressure from Israel and Western powers over its
controversial nuclear program, Iran has unveiled upgrades to weapons
systems and held several military exercises this year to demonstrate its
ability to defend itself.
Separately, the leader of Lebanon's Iranian-backed militant group
Hezbollah said on Monday that Iran could hit U.S. bases in the Middle
East in response to any Israeli strike on its nuclear facilities, even
if American forces played no role in the attack. – AGENCIES
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