LONDON: Brent crude oil rose above $111 per barrel on Tuesday as expectations of a new stimulus for the US economy outweighed fears of recession and worries over the euro zone debt crisis.
A surprise move by the Swiss National Bank (SNB) to set a minimum exchange rate target of 1.20 francs to the euro also helped support oil as it boosted the European currency.
Gold fell sharply after the SNB move, after hitting a new record above $1,900 an ounce
Brent futures for October climbed $1.39 to a high of $111.47 a barrel before easing back to around $111.20 by 1355 GMT. US crude traded around $84.65 a barrel, down from Friday’s close at $86.45. The US crude contract had no settlement on Monday due to the US Labor Day holiday.
"Prices are being supported by hopes of another economic stimulus," said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt. "But there is a big risk to the downside in this market. The economy is slowing and it is not clear how the United States will pay for another stimulus."
Olivier Jakob, managing director of consultants Petromatrix said the shock SNB move was offering extra support to oil.
"The euro is surging versus the Swiss Franc, which in turn is providing some support on the euro versus the dollar," Jakob said.
Economic activity is slowing worldwide, data suggests, and a senior Chinese official said on Tuesday that China’s economic growth may fall below 9 percent in 2012.
A report by the United Nations economic thinktank UNCTAD said on Tuesday that the pursuit of austerity measures and deficit cuts was pushing the world economy towards disaster in a misguided attempt to please global financial markets.
The UNCTAD report projected global economic growth would slow to about 1.5 percent in 2012, less than half the UN forecast of 3.1 percent growth for this year.
If global economic growth were anywhere close to 1.5 percent next year, demand for oil would fall in much of the industrialized world and many western economies would be near to, or in recession, economists say.
Supply concerns
Oil prices gained some extra support from supply concerns.
A major oilfield in China was closed due to leaks, which analysts expect will reduce Chinese state oil producer CNOOC’s total output by about 2 percent this year and increase Chinese crude imports.
China’s State Oceanic Administration ordered the PL19-3 oilfield in the northern Bohai Bay, owned and operated by CNOOC and ConocoPhillips, to cease operations because the US firm had failed to seal a leak for more than two months, CNOOC said on Monday.
More than half the crude production in the US Gulf of Mexico remains shut due to Tropical Storm Lee, which is hindering efforts to restaff and restart oil and gas platforms in the basin.
In Libya, where 1.6 million barrels per day of crude production remain offline, more signs emerged that the country’s conflict could be nearing a resolution.
Scores of Libyan army vehicles have crossed the desert frontier into Niger in what may be a secretly negotiated bid by Muammar Gaddafi to seek refuge in a friendly African state, military sources from France and Niger said. –Additional reporting by Francis Kann in Singapore
