Oil gains on driving season demand, China stimulus hopes

[June 09, 2015]  By Simon Falush

LONDON (Reuters) - Oil prices gained on Tuesday as higher seasonal demand in developed economies offset the impact of a large global supply overhang.

Expectations of a fall-off in U.S. shale oil production and a weaker dollar also underpinned prices.

Brent for July delivery <LCOc1> was up 95 cents to $63.64 a barrel as of 08:46 GMT (04:46 EDT), having settled down 62 cents in the previous session.

Front-month U.S. crude <CLc1> climbed 73 cents to $58.87 a barrel, after ending the previous session down 99 cents.

Demand for oil tends to increase in the summer months as drivers take to the roads for holidays in Europe and the United States. This has helped counter the impact of a growing glut in supply that has led to tankers storing oil at sea.

"There is currently seasonal demand for oil, so there is less of a build in crude oil stocks," said Olivier Jakob at Petromatrix in Zug, Switzerland. "But there is still too much oil for the rally to take hold."
 

Hopes of more economic stimulus in China after disappointing data from the world's No.2 economy also gave some support to the oil price.

China's consumer inflation weakened more than expected, to 1.2 percent year on year in May, raising concerns about growing deflationary pressures as the economy cools. Its producer prices fell for the 38th consecutive month.

Underlining general weakness in the market, data the previous day showed Chinese oil imports fell by about 11 percent in May from a year earlier in their steepest drop since November 2013.

The outlook for strong supply looks entrenched with OPEC on Friday agreeing to continue unconstrained output and Iran and Iraq potentially boosting production.

A likely fall in shale oil production in the United States also lent support to prices.

"I think some people are betting production is going to fall," a New York-based trader said.

He said OPEC's decision last week to keep supply unchanged at above 30 million barrels per day was having the intended consequence of limiting competition from the United States.

Oil production declines from the largest U.S. shale plays are forecast to deepen for the third consecutive month in July even as rig productivity remains high, monthly drilling data from the U.S. Energy Information Administration showed on Monday.

Investors were awaiting weekly data later on Tuesday from the American Petroleum Institute for more evidence that stockpiles in the U.S. were falling.

Other EIA data due on Wednesday is expected to show U.S. commercial crude oil stocks falling for a sixth straight week in the week ended June 5, a preliminary Reuters survey showed on Monday. [EIA/S]

(Additional reporting by Meeyoung Cho in Seoul; editing by Jason Neely and David Evans)

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