Oil prices rose towards $102 a barrel on Thursday on fears Norway’s oil output could be sharply cut after Statoil called a lockout in a bid to end a strike and gains were further extended after China cut interest rates to stave off further economic slow down.
A lockout means a complete shutdown of Norwegian oil and gas production, virtually guaranteeing government intervention and an end to the strike, which is now in its 12th day.
“The likelihood is that the strike will end sooner than expected. Prices rose in a knee-jerk reaction,” said Carsten Fritsch, analyst at Commerzbank, anticipating the gains would dissipate once the government acts.
“Norway’s reputation is that they are a reliable producer so if the lockout happens the government will step in.”
Brent crude rose by $1.81 to $101.58 a barrel by 1155 GMT, after hitting a high of $102.34 a barrel.
US crude futures firmed by 72 cents to $88.38 a barrel.
China’s central bank on Thursday cut interest rates, a month after its last reduction in the latest attempt to bolster slowing growth in the world’s second-largest economy and crude oil importer.
“The market is not sure what to do with the news. It is positive news that China is easing its monetary policy but there are worries that the slowdown might be worse than originally anticipated,” said James Zhang, analyst at Standard Bank.
“The market is undecided but more inclined to take it as positive.”
New data is expected on Friday and is likely to show that China’s economic growth has probably slowed further in the second quarter to 7.6 percent, its worst performance since the 2008/09 financial crisis, as investment, factory output and retail sales weakened across the board.
“The cut in rates came sooner than we expected, we were looking for a cut in reserves requirement ratios first, to be followed by a rate cut,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London.
“By doing the rate cut first over further reduction in reserve requirements by commercial banks signals a more aggressive stance to defend economic growth which has shown clear signs of slowing down in Q1.”
Norwegian oil major Statoil said it would start shutting down production at its fields from July 9 and the shortfall would amount to 1.2 million barrels per day of oil equivalent as some 6,500 workers will be locked out of their work places.
“We need to keep in mind that this is exactly what the unions were trying to avoid as it should force intervention from the government to force the workers back to work,” Olivier Jakob at Petromatrix consultancy, wrote in an oil note.
Jakob expects swift action from the Norwegian government, pointing out that after a smaller scale lock out announcement in 2004, the government stepped in the following day.
The dispute between the industry and the unions over pensions has so far reduced production from Norway, the world’s eighth largest oil exporter, by around 13 percent.\The European Central Bank cut its main interest rate to a record low of 0.75 percent and its deposit rate to zero on Thursday, to help tackle the euro zone crisis that threatens to push the bloc’s deteriorating economy back into recession. The move complements measures agreed by government leaders last week to tackle the bloc’s debt crisis. Economic surveys released on Wednesday suggested even euro zone powerhouse Germany is entering a modest downturn and investors want the ECB to take action.
Furthermore, the Bank of England launched a third round of monetary stimulus on Thursday, announcing it would restart its printing presses and buy 50 billion pounds of assets with newly created money to help the economy out of recession.