Brent crude rebounded above $124 a barrel on Monday on fears that Iranian sanctions are limiting supply, offsetting a cut in China’s economic growth target and a boost in oil production by Iraq.
“The geopolitical risk factor is putting a floor under (the price)”, said Michael Hewson, senior market analyst at CMC.
Brent crude oil futures for April rose by 83 cents to a high of $124.48 before falling to $124.15 by 1322 GMT. US April crude on Monday was roughly flat at $106.65, but earlier in the day it traded as high as 107.29 per barrel.
China cut its 2012 growth target to an eight-year low of 7.5 per cent from its long-standing annual goal of 8 per cent, causing a fall in Asian shares and raising questions over oil demand.
Although fears over Iran continued to weigh on sentiment, analysts said the possibility of a slowdown in Chinese growth would reduce pressure on oil supply, and technicals suggested limited upside.
“On fundamentals alone, you’ve got to think that the upside should be fairly limited given concerns over economic growth, certainly out of Europe and possibly China as well after they downgraded their growth forecasts earlier today,” said Hewson.
“It’s going to take a geopolitical shock to send it much above $125, and it’s really going to take a significant decline in economic activity to send it below $105.”