Brent crude rose for the eighth consecutive session today to just below $117 a barrel, though prices stayed under a four-month peak hit on Friday on worries that high oil prices could hamper efforts to boost the world economy.
Oil has been boosted by the US Federal Reserve's aggressive moves last week to stimulate the world's biggest economy, but Brent crude's rally of about a third since late June could backfire by undermining demand in a fragile economy.
"The current price certainly doesn't do any favours for a global economy that is struggling to get back on track. A price rally like we are seeing now is only going to do more damage," said Victor Shum, managing director of consultancy IHS Purvin & Gertz. "Fundamentals at the moment are not indicative of these prices, and I don't see oil being able to sustain this rally."
Brent crude for November delivery rose 16 cents to $116.82 a barrel by 6.31am (7.31am Irish time) but remained off a four-month peak hit in the previous session at $117.95 a barrel. Brent gained 2.1 per cent in the week ended September 15th.
US crude rose 4 cents to $99.04 a barrel, about 1.5 per cent off its session high of $100.42 on Friday.
Investors were also concerned about the impact rising prices would have, not just on Chinese oil demand, but on the world's second-largest economy.
"Obviously rising prices makes it more difficult for consumers like China," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
"If we continue to see a further deterioration or a lack of pick-up in the Chinese economy, then you would be expecting Beijing to step up stimulus spending."
Analysts polled by Reuters forecast China's economy would slow further in the third quarter but regain some momentum late in the year as the impact of policy easing fully kicks in.
Still, even if activity rebounds modestly in the fourth quarter, it would drag full-year economic growth to below 8 per cent, a level not seen since 1999.
Last week's Fed decision to tie its third bond-buying programme directly to economic conditions was an unprecedented step that marked a major breakthrough in the central bank's efforts to drive down US unemployment.
Oil was also boosted by anti-Western demonstrations over a film mocking Islam's Prophet Mohammad and the continued dispute between the West and Iran's nuclear programme. The tensions brought the risk of a supply disruption in North Africa and the Middle East into focus.
Protesters have since late last week attacked the US embassies in Yemen, Egypt and Tunisia while the US sent warships towards Libya, where the US ambassador was killed by demonstrators. Demonstrations have also taken place in Kuwait, Iran, Bangladesh, Morocco and Sudan.
"There is definitely an upward pressure on oil prices down the curve," Mr Spooner said. "The threat that these tensions could lead to potential supply disruptions has raised the risk premium on oil."
Reuters
