Oil prices are being buoyed by the promises of central banks to take further measures to shore up the ailing economies of consumer countries, as key benchmarks look to finish up on the month for the first time in the last three.
The price of the forward dated Brent benchmark has risen in recent weeks to $106.69 a barrel, after dropping to a 2012 low of around $90.
The price move follows disappointing unemployment figures in the US, where the prospect of a so-called ‘fiscal cliff’ of automatically higher income taxes threatens to kill off fragile growth, which has slowed to an annual rate of 1.5%.
Further data is mounting which shows that the Chinese and Latin American economies which had been sustaining a steady rise in oil demand are slowing down.
The latest price moves signal yet another an odd cycle in energy prices, where dire economic news drags oil lower, only for it to recover as the same news prompts markets to expect stimulus from central banks.
Traders have also appeared to take a credulous line on the prospects of Iranian disruptions to oil supplies via the Strait of Hormuz, despite a clear message from the current commander of the navy that Iran would not attempt to close the Strait unless its own use of it was threatened.
“As long as Iran can use the Strait of Hormuz, others are free to pass through it,” Rear Admiral Alireza Tangsiri stated last Sunday in the Persian Gulf port city of Bandar Abbas. “The enemies are constantly stating that the Islamic Republic of Iran intends to block the Strait of Hormuz, but we say that common sense does not dictate that Iran should close the Strait of Hormuz as long as it uses it.
“However, this does not mean that we will stop exercising wise control over the strait.”
Fears are rising that the increasing violence in Syria will disrupt its oil producing neighbours.
European Central Bank president Mario Draghi sparked a global equities rally last week when he said he would do “whatever it takes” to save the euro, which investors took to mean the ECB would make huge interventions in the bond market to shore up sustainable rates on Italian and Spanish debt.
Draghi reportedly spoke without prior German approval, signaling the willingness of the ECB to embrace its role as a lender of last resort to European member states which are in danger of being shut out of credit markets. The ECB’s Governing Council is scheduled to meet on 2 August.
The Federal Reserve is expected to announce further stimulus measures this week, and the Bank of England is under pressure to cut interest rates to zero as it continues another tranche of gilt purchases.
