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Oil surges on China stimulus, Saudi cooperation talk
[NEW YORK] World oil prices surged higher Monday as China boosted efforts to tackle its slowing economy and Saudi Arabia welcomed cooperative action to stabilize the market.
The US benchmark West Texas Intermediate (WTI) for delivery in April rose 97 cents (3.0 per cent) to $33.75 a barrel on the New York Mercantile Exchange.
In London, Brent North Sea crude for April advanced to $35.97 a barrel, a gain of 87 cents (2.5 per cent) from Friday's settlement.
Rebounding from losses Friday, the market was lifted by China's cut in reserve requirements for banks, freeing up additional funds for lending in the world's largest energy consumer.
"The Chinese government is taking action to further stimulate the economy and we all know if the Chinese economy is stimulated the demand for oil will be stimulated as well," said Phil Flynn of Price Futures Group.
While it was the fifth time the People's Bank of China has taken such action in the past year, "that was enough stimulus to give oil traders a little bit of buying appetite," Flynn said.
CMC Markets analyst Jasper Lawler pointed out that credit expansion in China has been ramping up in recent months.
"Credit expansion is not a long-term solution to China's growth slowdown but would likely support growth this year - and remove some of the concern that has been driving oil prices lower," he said.
Saudi Arabia, the largest oil producer in the 13-nation Opec, was in focus after suggesting openness to a coordinated solution to market volatility, while insisting it would not cut production despite the global oversupply.
Saudi Arabia said it 'seeks to achieve stability in the oil markets and will always remain in contact with all main producers in an attempt to limit volatility and it welcomes any cooperative action,'" Tim Evans of Citi Futures said in a client note.
"However, while the bulls are taking this as encouraging sign, we note the same statement also said the kingdom plans to spend 'massively' to maintain spare capacity and remains determined to meet a 'larger portion of global demand,'", he said.
"In other words, there's no change in Saudi Arabian policy."