LONDON: Oil prices steadied, with North Sea Brent crude just above $122 a barrel on Friday after data showed China’s economic growth beating forecasts, despite government efforts to cool expansion and curb inflation.
Strong growth in the world’s second-largest oil consumer is bullish for fuel but is also encouraging Beijing to tighten monetary policy in moves that could slow consumption.
Prices were supported by worries over supply from the Middle East and Africa as fighting in Libya continued but were tempered by a note from Goldman Sachs recommending underweight allocation to commodities on a three-to-six-month horizon.
ICE Brent crude for June was up 30 cents at $122.30 a barrel by 1325 GMT. US crude futures for May fell to $107.91 a barrel, down 20 cents.
"The pace of Chinese growth points to further monetary tightening there, which could weigh on Chinese fuel demand in the future," said Carsten Fritsch, an analyst at Commerzbank.
Chinese economic annual growth eased slightly in the first quarter to 9.7 percent from 9.8 percent in the previous quarter, the National Bureau of Statistics said.
Preliminary government data also showed China’s implied oil demand grew by double digits for the sixth consecutive month in March but was down from February as refineries scaled back runs on maintenance and soaring crude costs.
Analysts expect China to raise reserves at banks and hike interest rates again to put a lid on consumer prices after growth eased just a touch in the first quarter, while its inflation jumped to a 32-month high.
Prices came under some pressure after the release of a research note by Goldman Sachs recommending investors go underweight commodities over a horizon of three to six months.
The note echoed a Goldman call on Monday and also helped knock down oil and copper prices, although the US bank said it was bullish over a one-year period.
"Barring further persistent increases in oil prices that damage demand, we expect demand growth to continue to outpace supply growth, leading to much lower inventories and OPEC spare capacity later next year, which would be hastened should the Libyan outage persist," Goldman said in Friday’s report.
Fritsch said worries about possible supply disruptions as a result of unrest in the Middle East and North Africa were still the key factor behind the strength of oil prices.
"We still think that oil prices are strong mainly because of supply-side worries and the weaker dollar, not because of an increase in demand," Fritsch said.
"It all depends when the risk premium starts to decline. We believe the risk premium for oil is worth about $20 per barrel."
The dollar index, which tracks the dollar’s performance against a basket of major currencies, rose slightly on Friday after falling to a 16-month low.
Iran’s oil minister said on Friday oil prices were "not extraordinary", despite their recent surge.
"The price depends on the oil market … If you consider the price … in the past 40 years, what we have today is a logical price," Massoud Mirkazemi told a news conference.
He reiterated Iran’s stance that there was no need for an emergency OPEC meeting.
Ahmad Qalebani, the head of state National Iranian Oil Company, said: "The price, which is around $120, is a good price for us."
Additional reporting Florence Tan in Singapore
