Oil dips but bounces off low on hopes for demand boost from China stimulus

HOUSTON (Reuters) - Oil prices almost fully recovered from a sharp drop on Monday, paring losses as investors bet China’s economic stimulus moves would lift crude demand in the world’s No. 2 economy.

FILE PHOTO: Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas U.S. August 22, 2018. Picture taken August 22, 2018. REUTERS/Nick Oxford/File Photo

Traders sent global benchmark Brent crude tumbling below $83 per barrel early in the session after China’s central bank on Sunday slashed lenders’ reserve requirements, a signal Beijing is working to maintain economic growth.

“The reaction by the Chinese to the slowdown there is a salve the market started to price back in,” said John Kilduff, a partner at Again Capital Management in New York.

Brent crude LCOc1 hit a session low of $82.66 but settled just 25 cents lower at $83.91 per barrel. Brent hit a four-year high of $86.74 last week.

U.S. crude CLc1 had fallen to a session low of $73.07 per barrel but climbed back up to settle at $74.29, just 5 cents lower.

Traders said oil prices also got a boost from a new report showing a small drop in oil inventories last week at the main U.S. storage hub at Cushing, Oklahoma.

Cushing storage levels were about 28.5 million barrels on Friday, market intelligence firm Genscape reported, according to traders who saw the report. They said that was down 15,000 barrels from what Genscape reported earlier in the week.

The report of a small crude decline eased fears that had pressured oil prices after U.S. government data on Wednesday showed a large build in the U.S. commercial crude stockpile.

Also pressuring oil below $83 a barrel in early trade were reports that some Iranian oil exports will keep flowing after the U.S. re-imposes sanctions.

Last week, Saudi Arabia announced plans to lift crude output next month to 10.7 million barrels per day (bpd), the kingdom’s highest level ever.

Iran’s Oil Minister Bijan Zanganeh on Monday called a Saudi claim that the kingdom could replace Iran’s crude exports “nonsense.”

“Iran’s oil cannot be replaced by Saudi Arabia nor any other country,” Zanganeh said, according to his ministry’s website.

On Monday, Gulf of Mexico oil companies shut down 19 percent of oil production as Hurricane Michael moved toward eastern Gulf states including Florida.

If current forecasts prove accurate, the hurricane would largely miss major producing assets in the Gulf, analysts said.

However, “if the storm wobbles at all, it’ll be a direct hit on Gulf of Mexico producing assets,” Kilduff said.

Additional reporting by Henning Gloystein and Alex Lawler; Editing by David Gregorio and Cynthia Osterman