Oil jumps 3% as China moves to boost economy and crude output drops

Oil prices jumped 3 per cent overnight after China moved to boost its slowing economy.
Oil prices jumped 3 per cent overnight after China moved to boost its slowing economy.PHOTO: AFP

NEW YORK (REUTERS) - Oil prices jumped 3 per cent overnight after China moved to boost its slowing economy, a drop in crude output from OPEC and the US, and a pledge by Saudi Arabia to limit market volatility, suggesting a 20-month selloff could be hitting a bottom.

China, the world's largest oil importer, cut its reserve requirement ratio, the amount of cash banks must hold as reserves, for a fifth time in a year.

US government data showed US crude oil output in December fell for a third straight month to the lowest since December 2014, while oil demand rose for the first time since August, government data showed.

Output from the Organization of the Petroleum Exporting Countries fell in February from the highest monthly level in recent history, a Reuters survey found, due to a halt in Iraq's northern exports and outages in other producers.

Saudi Arabia, working with Venezuela and Qatar and non-OPEC producer Russia on a plan to freeze oil output at January highs, pledged to "remain in contact with all main producers in attempt to limit volatility" in crude prices. "We have to accept the fact that crude (price) is going to work its way higher from here," said Jeffrey Grossman, energy dealer at New York's BRG Brokerage.

Brent crude's front-month contract April settled up 87 cents, or 2.5 per cent, at US$35.97 a barrel before expiring and going off the board. May Brent settled up US$1.13, or 3.2 per cent, at US$36.57 a barrel.

US crude's front-month settled up 97 cents, or 3 per cent, at US$33.75.

Oil prices remain down about 70 per cent from their mid-2014 highs above US$100, though a steady rebound over the past two weeks has had some traders and investors wondering whether the market has reached a near-term floor.

Even so, a Reuters poll of analysts showed them expecting crude to average at just over US$40 a barrel this year.

Banks from Goldman Sachs to Morgan Stanley and Barclays have suggested that without an outright cut in output, a production freeze will not boost prices much.

Iran has been a stumbling block to the Saudi plan, aiming to raise its oil output to reach pre-sanction export levels.

Tehran said on Monday its exports rose over the past month, reaching a 1.75 million barrel per day peak.