IPE Brent futures extend losses after Chinese rate hike

London (Platts)--28Apr2006

The price of IPE Brent crude futures in London continued to fall in
trading on Friday due to concern over Chinese crude demand following a hike in
interest rates and a further bout of profit-taking ahead of the weekend,
brokers said.
The front-month June futures contract has traded down 29cts to
$70.62/barrel at 1125 London time (1025 GMT) and had been as low as
$70.45/barrel earlier in the day extending Thursday's losses which saw
front-month June ditch over a dollar in value shortly after 1300 London time.
Crude prices have fallen over $4/barrel since Monday, threatening to go below
$70/barrel today for the first time since April 13.
"Technically today the market is looking weaker once again and I think
that rather than seeing the traditional Friday rally it could come off even
further with more profit-taking and we could see remaining short positions
flushed out," said one London based broker. "Yesterday the spreads weakened
drastically over the lunchtime period (in London) and they are looking weaker
again today," he added. "Remember that at the end of April the market usually
tends to pull back a little."
Thursday's announcement by the People's Bank of China that it will raise
it's benchmark one-year lending rate by 27 basis points to 5.85% could
potentially reduce demand for energy and other commodities needed to feed
China's fast-growing economy. It is the first rise in interest rates by the
People's Bank of China since October 2004.
"Roughly a year and a half ago, crude was trading at all time highs and
funds were well long. The day Chinese interest rates were raised the market
dumped about $3/barrel and there is a feeling that we are in a very similar
situation," said one broker commenting on the last time that interest rates in
China were raised and the subsequent impact on the price of crude.
That impact may have been muted, however, by comments from US Central
Bank Chairman Ben Bernanke Thursday suggesting the US Federal Reserve Board
might soon end its recent string of consecutive rate hikes.
Later Friday eyes will be on a report due out from UN nuclear chief
Mohamed ElBaradei, which is expected to state that Iran has failed to meet a
UN deadline to stop enriching uranium and opening the door to possible
sanctions against the country.
--Jonathan Davies, jonathan_davies@platts.com

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